APC Technology Regulatory News (APC)

28 May 2015

APC Technology Group PLC

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

Unaudited Interim Results for the six months ended 28 February 2015

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 unaudited interim results for the six months ended 28 February 2015.

Financial Highlights

§ Group revenues up 19% to £14.5m (H1 2014: £12.1m)

§ Revenues in Minimise Group, the Group's sustainability-related business, up 41% to £8.3m (H1 2014: £5.9m)

§ Revenues in Advanced Power Components, the Group's electronic component distribution business, flat at £6.2m (H1 2014: £6.2m)

§ Group gross profit up 16% to £5.2m (H1 2014: £4.5m)

§ £3.5m raised during the period to fund expansion

Operational Highlights

§ Strengthening of management team: Appointment of Richard Hodgson as Group CFO and Andrew Shortis as MD of Minimise Group

§ Expansion of end-to-end sustainability offering through the creation of Minimise Water and Minimise Generation

§ Deepening and diversification of customer base

§ Delivery of cross-selling momentum and operational efficiencies following the acquisition of Green Compliance plc

Commenting on the results, Mark Robinson, Chief Executive, said:

"The first half has been a period of further progress and expansion for the Group. There has been a great deal of investment to support the Board's longer-term growth strategy and we're already starting to see strong sales to support this approach, which should provide investors with reassurance that the Group is moving in the right direction.

With the acquisition of Green Compliance, the establishment of Minimise Generation, the deepening and diversification of our customer base and the impressive sales we're already starting to achieve, the future of our end-to-end sustainability-related offering looks bright. I'm confident that the foundations are now being laid in the right way to support dramatically improved profitability in the near future.

APC is on the cusp of an exciting phase of growth worthy of continued investment and I would like to take this opportunity to thank our shareholders for their funding and support. Without them, the Group would not be in the favourable position it is today. I look forward to the future with confidence and to reporting further progress in the coming months."

Enquiries:

Notes to Editors:

A video with Mark Robinson discussing APC's interim results is available here:

http://brrmedia.co.uk/event/138776?popup=true

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.

Since 2009, APC has been in a process of diversification. While it maintains a key and stable division involved in the distribution of specialist electronic components, which has represented the majority of revenues since incorporation in 1982, the rapid growth of Minimise Group ("Minimise"), the holding company for APC's sustainability operations, has led to a shift in commercial emphasis. Through its Minimise brand of integrated business units, each of which offers a different sustainability-related product or service, the Group's objective is to become a "one stop shop" for corporates and SMEs looking to address all of their sustainability needs and requirements.

Achieving this objective is an ongoing process, and to that end the six-month period ending 28 February 2015 has been one of further progress and expansion for the Group defined by on-going investment, early success in the deepening and diversification of its customer base and the continued development of its end-to-end sustainability offering.

Summary of financial performance

Revenues for the period were £14.5m (2014 H1: £12.1m) representing growth of 19% over the corresponding period in the preceding year.

In the Group's sustainability business, Minimise Group, the underlying revenue performance in the period under review reflects a more significant growth rate of close to 41% taking into account the significant reduction in revenues from WM Morrisons, which encouragingly has now recommenced ordering, and the incremental revenues achieved through the acquisition of Green Compliance plc in September 2014. As mentioned in the March 2015 trading statement, significant progress has been made in reducing over-reliance on any one customer in the period, with sales to customers other than WM Morrisons by Minimise Energy increasing 300% from £0.9m to £3.6m.

The Board is pleased to confirm that this level of growth for Minimise has continued into the second half of the year to date with new customers being added and more services and products being sold to existing clients.

During the period, the Group achieved an operating profit before interest, tax, amortisation, share based payments and exceptional costs of £249,000 (2014 H1: £815,000). Exceptional costs incurred in the period include acquisition costs in respect of Green Compliance plc of £650,000, restructuring costs of £150,000 and discontinued costs relating to the acquisition of Green Compliance plc totalling £345,000. Taking into account interest, tax, amortisation, share based payments and exceptional costs, the retained loss for the period was £1,077,000.

Minimise Group

Minimise is at the crux of APC's growth strategy. It creates and implements sustainability strategies that help organisations improve financial and commercial performance and help meet corporate, environmental and legislative targets. Made up of several business units, it provides a complete range of integrated and complementary sustainability technologies, products and services which dedicated client managers are trained to cross-sell; including energy efficiency, energy generation, water management, sustainability consulting and project financing.

This integrated approach results in customers benefitting from greater efficiencies across their business or an individual site and therefore offers them a dramatically improved return on their investment.

Business units

§ Minimise Energyoffers innovative energy efficiency technologies to help organisations achieve on-going energy reduction goals. These include LED lighting (design, supply and installation), energy monitoring and reporting, contactless power systems and optimisation for electric motors, gas and electric boilers and air-conditioning systems. This business is capitalising on the increasing demand for energy efficiency technologies and the growth in revenues from new customers experienced in the first half year is continuing into the second half.

§ Minimise Generation, which optimises businesses' energy generation using renewables to help customers drive operational savings, increase energy self-sufficiency while simultaneously reducing carbon emissions and helping to meet carbon reduction targets, is now building its own revenue stream. Although limited initially, this is backed up by a strong project pipeline which is currently being helped by UK Government initiatives intended to stimulate renewable generation at point of consumption.

§ Minimise Solutions, a strategic consultancy and advisory service helping organisations to develop sustainability models, meet reduction targets and comply with legislation, is gaining traction having acquired a number of new customers in addition to Royal Mail Group. The recent introduction of the Energy Savings Opportunity Scheme ("ESOS") is presenting an opportunity to engage with a wider customer base which is potentially interested in both sustainability related consulting services plus products and technologies with the potential to drive down consumption and cost. 

§ Minimise Finance, which delivers tailor-made financing options to fund energy efficiency and renewable energy schemes from identified savings, secured its initial energy efficiency projects during the period and has significant proposals moving forward with a number of potential customers.

§ Minimise Water(Green Compliance), offers a complete range of water management and air hygiene technologies and services to help reduce the cost of compliance and save money on operating costs. Since the integration of Green Compliance, this business unit has maintained its core water hygiene and treatment contract base and has begun to develop new revenue streams through an extension of its products and services related to the management of water consumption.

§ Investment in Minimise Energy Americas, the Group's sustainability offering in the Americas, was expanded during the latter months of 2014. It is clear that Minimise's approach of combining LEDs alongside a number of other products and services designed to target specific applications is proving successful in certain significant market areas. The Board remains excited about the opportunity, in what is clearly a significant potential market, and intends to further develop its presence in the Americas in a carefully controlled manner.

Following the acquisition of Green Compliance plc and the creation of Minimise Generation Limited in January 2015, Minimise now delivers an expanded range of innovative technologies, products and services through its brands.

As the breadth and depth of the Minimise offering is now better understood by the market and existing customers, the scale of sales opportunities being developed across the Group is escalating and the Board is confident that its strategy of developing an end-to-end sustainability offering will prove increasingly successful in what is a rapidly expanding market. Early evidence of the commercial viability of this model can be seen in its relationship with the Royal Mail Group where revenues have grown strongly from an increasing number of projects related to sustainability consulting services, energy efficiency and water management technologies in the initial phase at the largest 70 of the Royal Mail Group's 1,200 sites.

Revenues in Minimise (excluding Water) were approximately £4.0m during the period (2014 H1: £5.9m), the vast majority of which came from sales made by Minimise Energy. Importantly, as a result of investments being made in the other parts of the Minimise Group, additional revenues streams are now beginning to gather momentum.

Half year revenues in Green Compliance, which now trades as a part of Minimise Water, were in line with expectations at £4.1m.

Investment

Investment in Minimise was significant in the period under review and has continued into the second half of the year. Whilst the level of on-going investment in the various business units and Minimise Energy Americas is reducing short term profitability, the Board is satisfied that the Group's available funding and strategy of investing in technologies, products, services, and the teams required to deliver them for significant long term growth puts it in a strong position. It expects that each of these business units will become profitable in their own right in the coming months, thus improving future Group profitability significantly. The Board will continue to consider acquisition and investment opportunities to expand existing operations or to add a new technologies, solutions or product sets for which demand from its customers is evident.

Advanced Power Components

Revenues in APC's electronic component distribution business, which trades as Advanced Power Components, were £6.2m (2014 H1: £6.2) which was in line with expectations. The order book for the second half of the current financial year is strong, which is consistent with historic trading patterns in which trading in the second half of the year is typically slightly stronger than the first half. The distribution business continues to be profitable and provide cash flow stability to the Group.

Group

Working Capital and Funding for Growth

Between December 2014 and February 2015, £3.4m of cash was raised to fund expansion via the placing of, in aggregate, 17,193,182 new ordinary shares in the Company. These funds were raised to support the investment required to take advantage of the growth opportunities that have been identified. In the current financial year the Group has invested approximately £1m to develop Minimise Energy, Minimise Solutions, Minimise Generation and in its American operations to address what is clearly a growing opportunity. The Group has also invested approximately £1.5m in working capital to support the recent expansion in revenues, and will continue to make strategic, but controlled, investments to maintain the current rate of growth.

Net debt at the end of the period was £1.25m including cash on hand of £2.4m, £2.9m drawn on the invoice finance facility (against a gross debtor book of £4.5m) and £750,000 of unsecured loan notes from shareholders, which are due to be redeemed in July 2015.

Outlook

In advance of the United Nations Climate Change Conference in Paris in December 2015, UK government legislation, including the ESOS and changes to the UK's Photovoltaic feed-in tariff, are being used to encourage the UK corporates and SME's to take action to reduce energy consumption and, where possible, to generate energy renewably on-site. The Board considers that this legislation further enhances what is already a significant domestic opportunity for future growth.

APC has evolved dramatically in recent months and now has a number of opportunities available to it with the resources and infrastructure that are in place. However, considering the proven effectiveness of the "one stop shop" business model and the increasing demand for technologies, products and services designed to help organisations manage the sustainability of their estate, the Board firmly believes there is a far more significant growth story worthy of continued investment in the second half and beyond. The Board is very appreciative of the Group's shareholders, whose continued support has enabled the Group to fund this exciting phase in its development, and looks forward to the future with confidence.

Leonard Seelig

Chairman

28 May 2015

CONDENSED CONSOLIDATED STATEMENT OF INCOME

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

1. General information

APC Technology Group PLC is a public limited Company ("the Company / the Group") incorporated in the United Kingdom under the Companies Act 2006 (registration number 01635609). The Company is domiciled in the United Kingdom and its registered address is 47 Riverside, Medway City Estate, Rochester, Kent, ME2 4DP. The Company's Ordinary Shares are traded on The AIM Market of the London Stock Exchange ("AIM"). The Group's principal activities are the distribution of specialist electronic components and the sale of smart energy & water saving products and services.

2. Basis of preparation

This unaudited consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively EU IFRSs). The principal accounting policies used in preparing the interim results are those it expects to apply in its financial statements for the year ended 31 August 2015 and are unchanged from those disclosed in the Group's Annual Report for the year ended 31 August 2014.

The financial information does not contain all of the information that is required to be disclosed in a full set of IFRS financial statements. The financial information for the six months ended 28 February 2015 and 28 February 2014 is unreviewed and unaudited and does not constitute the Group's statutory financial statements for those periods. The comparative financial information for the full year ended 31 August 2014 has, however, been derived from the audited statutory financial statements for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

The financial information in the Interim Report is presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.

3. Acquisitions

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 Cleantech 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 niche market for water quality monitoring. The Board is currently considering whether there are separately identifiable intangible assets.

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 liabilities 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 liabilities 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.

4. Segmental information

IFRS 8 "operating segments", requires consideration of the chief operating decision maker ('CODM') 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 CODM.

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

The Group operates in two trading business segments.

• The distribution of specialist electronic components (Distribution).

• The sale of smart energy & water saving products and services (Minimise).

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

In the table below 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.

5. Earnings per share

The calculation of basic earnings per share is based on the profit after taxation 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 and warrants outstanding. Where the effect of the above adjustments is anti-dilutive they are excluded from the calculation of diluted earnings per share.

The profit for the period and the weighted average number of shares used in the calculations are set out in the following table: -

There were 90,587,675 shares in issue at 28 February 2015.

6. Discontinued operations

The amounts presented in the statement of loss under discontinued operations relate to the run-off costs of Green Compliance plc during the integration of the Company into the Group.

7. Copies of Interim report

The interim report is available to view and download from the Company's website at www.apc-plc.co.uk. If shareholders would like a hardcopy of the interim report, they should contact the Company Secretary.