APC Technology Regulatory News (APC)

APC Technology Group PLC

("APC", the "Group" or the "Company")

Final results for the year ended 31 August 2014

APC Technology Group plc (AIM: APC), the provider of technologies and services intended to help improve organisational sustainability and specialist distributor of electronic components, is pleased to announce its preliminary results for the year ended 31 August 2014.

Highlights

· 15% increase in gross profit to £7.6m (2013: £6.6m)

· 17% increase in operating profit before exceptional costs and share based payments, to £0.573m (2013: £0.491m)

· Revenue £20.6 million (2013: £21.7 million)

· Further diversification into sustainable technologies sector, with the creation of Minimise Solutions, Minimise Finance and Minimise Generation.

· Investment in a disruptive commercial energy procurement platform through Open Energy Market.

· Post year-end acquisition of Green Compliance plc and establishment of Minimise Water widens APC's cleantech diversification into water management.

· Specialist electronic component distribution business launches Products+ online purchasing website.

· Board and senior management team strengthened.

Mark Robinson, CEO of APC Technology Group PLC, commented:

"During the year under review and in the subsequent months our strategy for diversification into the cleantech sector has been widened to include more aspects of sustainability relating to the built environment. Very tangible progress has been made to significantly increase the customer base, the range of technologies, products and services offered and the breadth of geographical territories covered. The Company is now addressing a huge and rapidly growing market with a business model that we believe has the potential to create significant shareholder value in the future."

Enquiries:

Notes to Editors:

About APC Technology Group PLC

Since 2009 APC has been in a process of diversification. The distribution of specialist electronic components, which has represented the majority of revenues since incorporation in 1982, remains a key part of the business but the rapid growth of Minimise Energy, coupled with the creation of Minimise Finance and Minimise Solutions, the recent acquisition of Green Compliance plc and the even more recent incorporation of Minimise Generation has created a sustainability focussed business that is set to grow rapidly in the UK, North and Latin America with the potential to generate significant, profitable growth for the foreseeable future.

APC's sustainability related activities are designed to offer its clients a simple, 'one stop shop' approach to meeting their sustainability obligations. With sustainability related consulting, energy management, water management and project financing under one roof the relationships required to overcome the obstacles which have historically held up sustainability enhancing projects are being created.

APC's electronic component distribution business, trading as Advanced Power Components, sells specialist components into defence, aerospace, space, transportation medical and industrial sectors. The Company's value-add business model, centred upon the technical experience and capabilities of the Company's sales engineers, are of value to both clients and suppliers, for whom APC typically acts on an exclusive basis.

CHAIRMAN'S STATEMENT

Last year I reported on a period of substantial change and redefinition of our businesses and I am pleased to report that this process continued throughout the year ended 31 August 2014 and post year-end.

During this period, the Board's focus shifted from strategy definition to implementation. Whilst we fully intend to further develop our electronic component distribution business, we recognise the very significant potential for growth in the sustainability sector and have taken steps to define and strengthen our position in this rapidly growing arena.

Our strategy to address this potential is clear: Minimise companies will provide our customers with a combination of technologies, products and services to assist them in managing the overall sustainability of their built estate. These products and services will be technologically advanced, will be of consistently high quality, will be priced to ensure that our customers achieve an attractive financial return and, wherever possible, will be owned within the Group. Specifically, Minimise Energy delivers energy-efficiency related products and technologies, Minimise Water delivers water management products and services via the Green Compliance business and Minimise Generation will design and deliver on-site renewable energy generation and storage systems. These businesses are supported by our sustainability focused consulting company Minimise Solutions and by Minimise Finance, which is developing financing models for energy related projects. We believe that having expertise in each of these complementary fields within a single organisation significantly differentiates us from our competition.

Post year-end the Board began to restructure and enhance senior management expertise across the business in order to ensure successful implementation of the strategy. Richard Hodgson joined the Board as Chief Financial Officer following the acquisition of Green Compliance plc (of which he was CFO) and subsequently Andrew Shortis has been appointed as Managing Director of Minimise Holdings. In addition, the Minimise Energy Americas management has been restructured, with Rod Foster being named as Managing Director with overall responsibility for North and Latin America. 

Trading

Despite a small fall in total sales during the year, to £20,634,000 (2013: £21,657,000), we managed to increase operating profit before exceptional items and share based payments by 17% to £573,000 (2013: £491,000) as a result of a number of cost cutting initiatives undertaken by the Group, together with margin improvement.

Sales of the Group's energy saving and efficiency products and services continued to be significant in the financial year at £8,178,000 (2013: £8,951,000). Continued orders from Wm Morrisons Supermarkets PLC drove first half performance, with substantive orders from other leading names in retailing, banking and transport growing in importance throughout the latter stages of the year. Sales in Advanced Power Components, our electronic component distribution business, were £12,456,000 (2013: £12,706,000). These relatively flat revenues were in line with the general distribution market. We are pleased that we maintained our share of this market through several positive developments in relationships with our suppliers, including an increase in our international representation, stocking arrangements with certain manufacturers and the creation of a new website for online purchases, "Products+", which started generating revenue after the financial year-end and is already seeing orders from different parts of the world.

Liquidity

The financial year ended with net borrowing of £202,000 (2013: net cash £1,048,000), the cash outflow in the year reflecting the investment activities undertaken during the year. Subsequent to the year-end, in December 2014, we raised an additional £2,075,000 before expenses through a share placing, to strengthen the balance sheet and provide funds for further expansion.

Dividend

The Board has once again reviewed the Company's dividend policy. Whilst it considers it desirable to pay dividends in the long term, it has again concluded that a greater return can be made to shareholders by investing available funds in the many opportunities for profitable growth now facing the Group. The Board is therefore not recommending a dividend for 2014 (2013: £nil). 

Board of Directors

Richard Hodgson, previously Chief Financial & Operating Officer of Green Compliance plc, has been appointed Chief Financial Officer and Director after Rob Smith's resignation as Finance Director earlier in the year. Additionally, Andrew Shortis has been appointed to the APC Board as Managing Director of Minimise Holdings where he will have responsibility for our sustainability division. Mark Robinson retires by rotation and offers himself for re-election. Tessa Laws also retires by rotation but will not be offering herself for re-election.

The Board intends to appoint an additional non-executive director in the near future.

Future

During 2014 we have invested significantly in the building of an organisation which we believe is uniquely placed to exploit the growing opportunities within the sustainability sector and to further cement our position in the electronic component distribution industry. This investment has continued post year end and we are optimistic that the strategy we are implementing is putting in place the foundations of profitable growth.

I would like to take this opportunity to thank our management, staff and advisors for their hard work and professionalism and our partners and shareholders for their support. 

I would also like to acknowledge and thank Tessa Laws for the hard work and significant contribution she made while serving on the Board. We wish her success in her future activities.

Leonard Seelig

Chairman

22 January 2015

Chief Executive Officer's Review

The financial year under review and the early months of the new financial year, continue to be transformative for APC. The scope of our diversification into the cleantech sector has been widened to include more aspects of sustainability relating to the built environment. Very tangible progress has been made to significantly increase the customer base, the range of technologies, the products and services offered and the breadth of geographical territories covered. The Company is now addressing a huge and rapidly growing market with a business model that we believe has the potential to create significant shareholder value in the future.

During the year under review the Minimise brand has been extended to cover energy efficiency through Minimise Energy Limited, energy related consultancy services through Minimise Solutions Limited and energy project financing through Minimise Finance Limited. Each of these businesses has played a significant role in attracting a number of high profile customers to the Group. Following the post year-end acquisition of Green Compliance plc, the Minimise brand has been extended further into Minimise Water and the very recent creation of Minimise Generation Limited enables the Group to offer on-site renewable generation to our expanding customer base. 

In the last financial year our core electronic component distribution business has remained strong relative to the distribution sector in general and a number of opportunities to strengthen it further are being explored.

Electronic Component Distribution

Revenues in our specialist electronic component distribution business declined by 2% compared with 2013 and market conditions remain difficult, but there continue to be a number of very positive developments across the business.

The focus remains on specialist applications where our sales engineers provide a valuable technical conduit between the specialist component manufacturers that we represent and our customers' design engineering teams. This engineering and logistical expertise is most valued in situations where end use equipment is operating in extreme conditions and component failure would be catastrophic, so the majority of our efforts are focussed on growing business in these relatively niche areas. Key applications in the year under review included components for flight critical systems on civil aircraft, counter IED (improvised explosive devices) equipment, satellites and space exploration and oil and gas 'down hole' applications encountering extreme temperatures. In addition, we saw continued success in the promotion of infection control keyboards and accessories to UK health service providers and have enjoyed the first real signs of success in the sale of ultra-capacitors into a variety of applications including renewable energy systems.

Plans and initiatives are constantly being implemented to grow this part of our business and post year-end a project undertaken with the encouragement of some of our key component suppliers to release an on-line sales platform has resulted in the release of the "Products+"Online Store which is one part of an initiative to generate more revenues internationally, a strategy that we believe offers good future growth prospects.

The distribution business is managed as a single reporting unit within which separately branded specialist sales teams focus on specific product ranges and address targeted markets:

Contech: the medical and broadcast sectors remained buoyant in the year under review. In particular, success to date in promoting infection control keyboards to hospitals has been supplemented by good progress in promoting the same products to dentists and veterinaries.

Hero: the refocussing of this business on growing a base of new design-wins in growing technology sectors remains a challenge but good progress has been made, especially in renewable energy applications where ultra-capacitors offer excellent advantages over traditional capacitor or battery technologies.

HiRel: design wins and sales into civil aircraft and space applications were particularly strong in the year under review, as a number of long term programmes moved into the full production phase. We are seeing some excellent opportunities going forward, both for these core products and for our more recent innovative lines in high temperature semiconductors and semi-custom interconnect products.

Locator: obsolescence management and an increasing infiltration of counterfeit components into all high reliability markets continues to drive a need for the services and expertise we provide to the defence, aerospace, oil and gas and transport sectors. Key customer relationships continue to be nurtured and significant business has been secured as a result.

Novacom: the demand for components used in improvised explosive device (IED) jamming systems remained particularly strong despite the reduction in the deployment of UK armed forces overseas, a trend that we are seeing continue into the current financial year.

Time: as anticipated, continued steady growth was achieved in this part of our business, as the need for accurate timing systems grew in line with an expansion in global trading.

Displays+: revenues for displays and for single board computers are expected to grow steadily over the next few years following our appointment as the prime route to market for NLT displays on 1st October 2014. NLT, a joint venture between NEC displays and AVIC Technologies, is one of the top five displays manufacturers in the world and we are already starting to develop some significant opportunities.

Sustainability Activities

During the last financial year revenues generated in the cleantech sector gathered momentum in the first half but then slowed significantly in the spring as demand from Minimise Energy's key customer at that time ceased for the remainder of the year. However, throughout the whole of the year and post year end many initiatives were underway across the business to reduce dependence upon any one customer, product, technology or geography. Though these efforts did not produce results early enough to offset the shortfall in revenues and profits in the financial year under review, they are now starting to have a positive impact across the Group:

Minimise Energy: in the latter stages of the last financial year significant progress was made to widen Minimise Energy's customer base for LED lighting and monitoring and control systems in particular. A number of initial orders, received from one of the UK's largest food and clothing retailers and one of the country's foremost high street banks, have been supplemented by further orders post year-end from those same customers and others. Contracts have now been received from Royal Mail Group for a mixture of products and services and from a number of organisations in North and Central America, including a mid-sized food retailer and a national restaurant chain. The level of activity focussed on new business development in this market sector in the UK and in the Americas is significantly higher than at any point in the past.

Minimise Solutions: the contract awarded to Minimise Solutions by Royal Mail Group post year-end represents a very significant landmark for this business, which provides sustainability-focussed consulting services intended to deliver tangible financial benefits through the implementation of a comprehensive sustainability strategy. A close working relationship between Minimise Energy and Minimise Solutions teams presented the client with a compelling proposition, which included the creation of an energy management strategy to be implemented through to the end of 2017. This strategy has already resulted in the receipt of orders for monitoring and control systems and LED lighting, the majority of which will be installed by the end of 2015. In addition Minimise Solutions is winning business from a number of other customers, which is expected to result in both consulting revenues and in the sale of products and technologies during the strategy implementation stage.

Minimise Finance: whilst this recently-formed part of the business has yet to secure its initial contracts, we believe that energy project financing will be critical to our growth in future years. Detailed contracts continue to be drafted and reviewed against upcoming changes to accounting standards and through this process much deeper client relationships are being developed which are expected to lead to significant future business.

Invisible Systems Limited (ISL): the ISL hardware and Realtime Online reporting software are increasingly critical to the Group's strategy of educating clients in the consumption of utilities and measuring the results of action taken. Sales in the year under review were limited while the system functionality was enhanced and client relationships were developed, but some significant contracts have been placed post year-end and revenues are expected to grow significantly in the current financial year as existing orders are delivered and the system is promoted right across the Group.

Open Energy Market Limited (OEM): following investment to acquire 10% of OEM in July 2014, we are pleased to report that the company, which has created the UK's first autonomous online energy procurement platform for corporate energy users, has made excellent progress in enhancing system functionality and has secured a number of contracts, most significantly from a high profile restaurant chain with more than 300 sites in the UK. We believe that helping energy-aware, and eventually water-aware, corporate customers to reduce both the level of their consumption and the base cost of the utilities is a natural extension of the services we provide and cross-selling initiatives are to be released in the spring of 2015. OEM's disruptive online procurement platform, which is marketed and sold as a service offered by Minimise Solutions, provides energy buyers direct access to the UK's top 14 gas and electricity providers, offering an efficient and fully transparent way to manage their energy procurement. OEM's customer base includes both public and private sector companies and the technology is proven to generate total energy cost savings of between 2% and 10% compared with traditional procurement methods.

Minimise Water: since its acquisition in September 2014, Green Compliance has traded in line with expectations, while a comprehensive plan is being implemented to integrate it into the Group through the establishment of Minimise Water. As anticipated, opportunities are emerging to promote water management services to Minimise customers and energy management services to the extensive Green Compliance customer base. Initially we are focussed upon extending the technology from Invisible Systems Limited (ISL), to provide a powerful, but simple to install, wireless cloud-based monitoring system to develop an understanding of water consumption in the same way that it currently details energy usage. The cost effective nature of a system able to monitor both energy and water consumption is clear, as is the potential to develop recurring consulting and analysis revenues plus technology and product revenues once opportunities are identified to reduce consumption in a cost effective way

Through the above companies, we believe that our Minimise brand offers a persuasive proposition for organisations interested in reducing waste in their property portfolio by becoming more sustainable in terms of energy and water consumption. Post year-end the Group has also created Minimise Generation Limited to design and deliver on-site renewable energy generation and energy storage systems, for which we believe there is a significant opportunity within the same customer base.

Outlook

We remain confident that our strategy to diversify into the wider market for sustainability products and services is well timed. We believe that it has the potential to generate significant shareholder value as the model is developed and as demand is fuelled by increasing global awareness of the need for organisations to become more sustainable. The market for technology and service to facilitate greater energy efficiency is very significant in its own right, but we believe that recent steps to add water sustainability, and to begin to focus on on-site renewable generation, are important as well. With technologies to promote energy efficiency, on-site generation and water efficiency, all supported by sustainability-focussed consulting and project financing, APC is clearly differentiated in the market; we know from recent experience that the model is appreciated by the customer base that is working with us. This strategy will take time to build but is already delivering positive results. We continue to benefit from the stability of our specialist electronic component distribution business, which provides the Group with a firm foundation.

Mark Robinson

Chief Executive Officer

For the year ended 31 August 2014

There were no other items of comprehensive income. Accordingly, no consolidated statement of comprehensive income has been prepared. There were no discontinued activities in either 2014 or 2013.

As at 31 August 2014

For the year ended 31 August 2014

Notes to the Consolidated Financial Statements

For the year ended 31 August 2014

1. Basis of preparation

Statement of compliance

These Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets at fair value, as required by IAS 39 Financial Instruments: Recognition and Measurement. The basis of consolidation is set out below. These financial statements have been prepared in accordance with IFRS as adopted by the European Union, and with those parts of the Companies Acts applicable to companies reporting under IFRS.

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 31 August 2014. While the financial information has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in February 2015.

2. Revenue and segmental information

Operating Segments

IFRS 8 "operating segments", requires consideration of the chief operating decision maker ('COD M') within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the CEO, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly the CEO is deemed to be the COD M.

Operating segments have then been identified based on the reporting information and management structures within the Group.

The Group had one customer representing over 10% of revenue (£6,463,000) and most of the revenue in the Cleantech segment was derived from this one customer.

The Group operates in two trading business segments.

• The distribution of specialist electronic components (Distribution).

• The sale of smart energy saving products and services (Cleantech).

The Group also contains a central services segment that provides support to the trading businesses.

In the table overleaf reportable segment assets and liabilities include inter segment balances. These have been included to reflect the assets and liabilities of the segment as monies are freely moved around the group to provide funding for working capital where required. The central services have been allocated between the two revenue-earning segments. The head office costs represent exceptional costs/(credits) associated with acquisitions and goodwill.

3. Net Financing

4. Taxation

(a) Analysis of charge in period 

(b) Factors affecting the tax charge for the period

The tax charge for the period is different to the standard rate of corporation tax in the UK. The composite rate of corporation tax for this purpose has been taken as 21.58% for 2014 (2013: 23.58%).

The differences are explained below:

5. Earnings per share

The calculation of basic earnings per share is based on the profit after taxation attributable to equity holders of the parent company for the period and the weighted average number of shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding by the dilutive effect of Ordinary Shares that the Company may potentially issue relating to its share option scheme.

Earnings per share on operating profit before exceptional costs are considered to be the most realistic measure of earnings and the calculation is based on the weighted average number of shares.

The profit for the year and the weighted average number of shares used in the calculations are set out below:

6. Events after the reporting period

Acquisition of Green Compliance plc

On 12 September 2014 the Group acquired through an all-share offer 100% of the share capital of Green Compliance plc ("Green Compliance"), a company incorporated in England and listed on AIM, whose principal activity comprises the provision of water quality monitoring services, in order to broaden its Clean Tech activities into the market for water management. The purchase consideration consisted of the issue of 2 new ordinary shares in APC Technology Group PLC for every 71 shares in Green Compliance.

Provisional details of net assets acquired and goodwill are set out below:

The above goodwill is attributable to Green Compliance's strong position in the water hygiene and treatment market. The Board is currently considering whether there are separately identifiable intangible assets.

Due to the limited time available between the acquisition and the approval of these financial statements, the Group is still in the process of finalising the list of identifiable assets and liabilities and establishing the fair values of those assets and liabilities acquired but it is anticipated that the fair value of the consideration paid over the book value of the net assets acquired will include customer relationships and goodwill representing the value attributable to new business and the assembled and trained workforce.

As at the date of acquisition, 12 September 2014 the net assets of Green Compliance, based on unaudited management accounts and reported under IFRS, were as follows:

Included in the balance sheet of Green Compliance plc was acquired goodwill of £6,182,000 making net acquired assets, including goodwill, of £2,131,000.

Exercise of share options

Options over 45,000 shares were exercised on 25 September 2014 with proceeds of £4,050.

Share placing

On 8 December 2014 the Board effected a share placing with certain existing and new investors, which raised £2,075,000 before expenses, to strengthen the balance sheet and provide funds for further expansion.

7. Publication of non-statutory accounts

The financial information set out in this announcement does not constitute the statutory financial statements for the year ended 31 August 2014 and the year ended 31 August 2013 in accordance with section 434 of the Companies Act 2006 but is derived from those accounts.

The financial statements for the year ended 31 August 2013 were prepared in accordance with Adopted IFRS and have been delivered to the Registrar of Companies. The financial statements for the year ended 31 August 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor's report on both accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

The full audited financial statements of APC Technology Group PLC for the year ended 31 August 2014 are expected to be posted to shareholders on Tuesday 3 February 2015 and will be available to the public at the Company's registered office, 47 Riverside, Medway City Estate, Rochester, Kent, ME2 4DP and available to view on the Company's website at www.apc-plc.co.uk from the date of posting.

8. Annual General Meeting

The Annual General Meeting of the Company will be held on Thursday 26 February 2015 at 12 noon at the offices of Strand Hanson Limited, 26 Mount Row, London, W1K 3SQ.