BOU.L Regulatory News (BOU)

11 August 2014

PhotonStar LED Group Plc

Half year results

PhotonStar LED Group Plc (AIM: PSL, "PhotonStar" or "the Group"), the British designer and manufacturer of smart LED lighting solutions, announces its half year results for the six months ending 30 June 2014.

Operational and strategic overview

• HalcyonTM domestic systems now shipping in beta form, expected to contribute to revenues in the second half of 2014

• Marks the culmination of six years of development

• Product release signifies inflection point in Group's strategy

• Expected to represent Group's biggest value driver

• All technical milestones for grant from Department of Energy & Climate Change (DECC) Entrepreneurs Fund completed - underpins the HalcyonTM smart circadian retrofit LED lighting system

• Patent portfolio continues to mature

Financial overview

• Revenues down 13% to £3.78m (H1 2013: £4.33m)

• Weather related delays in new build market push some revenue into H2

• Total gross profit margin slightly higher at 39.4% (H1 2013: 39.1%)

• Pre-tax loss of £0.60m (H1 2013: loss £0.61m)

• Loss per share of 0.4p (H1 2013: loss per share 0.5p)

• At 30 June 2014, net debt of £0.43m (H1 2013: net debt £0.32m)

Post period end

• Raised £2.2m through placing of shares, as announced on 18 July 2014

• Proceeds of placing to be used to maximise commercial opportunities for the HalcyonTM system

James McKenzie, Chief Executive of PhotonStar, said:

"We are delighted to now be shipping HalcyonTM domestic systems in beta form. Our connected lighting platform HalcyonTM can also provide a grid to enable rich data collection, as well as an ecosystem to enable other devices to operate simply and more effectively as part of the Internet of Things. We are working with partners on ways of using the HalcyonTM system to deliver new business models and solutions.

"The completion of the DECC grant validates our technology and underpins the HalcyonTM smart Circadian retrofit LED lighting system for both residential and commercial applications. We have now entered beta testing and field trials of the commercial HalcyonTM product, and the £2.2m we have recently raised will support the full launch expected later in 2014.

"The Board remains confident that its full-year results will be in line with expectations."

For further information:

About PhotonStar LED Group PLC

PhotonStar LED Group plc is a leading British designer and manufacturer of intelligent lighting solutions. The Group's proprietary technology HalcyonTM is a connected lighting platform that includes hardware and software for wireless, microprocessor controlled retrofit LED lighting and control systems, optimised for energy saving, circadian and data-centric applications. 

The Group's ChromaWhite light source technology within HalcyonTM is optimised for "Circadian," or non-visual effects of light on humans. The Group is currently working with partners to deliver low-cost lighting solutions that can help improve productivity, health and wellbeing in healthcare facilities, schools, workplaces and homes.

The Group also provides fixed white LED lighting products for a range of commercial and architectural applications.

PhotonStar comprises two divisions: PhotonStar LED, which works with lighting designers, architects, house builders, facilities management companies and sustainability consultants to provide intelligent, high-end, recyclable LED lighting solutions for the commercial and architectural market which is expected to see rapid adoption of the new HalcyonTM ecosystem; and PhotonStar Technology which provides LED lighting solutions for specialist applications such as film & television production lighting, UV curing and medical applications.

Photonstar has won awards for performance, innovation and reliability, with its flagship light source technology ChromaWhite winning the Lighting Association's 'Light Source of the Year' Award for two consecutive years. The Group was also awarded the UKTI's Business Innovation Award for Energy and Environment in 2010 for a commercial lighting solution with embedded sensors and microprocessor control.

Overview

PhotonStar currently comprises two divisions:

· LED lighting fixtures - works with lighting designers, architects, house builders, facilities management companies and sustainability consultants to provide intelligent, high-end LED lighting solutions for the commercial and architectural market.

· LED light engines - provides LED lighting solutions for specialist applications such as film and television production lighting, UV curing and medical applications as well as modules for the general lighting market based on the Group's patented ChromaWhite technology.

The Group sees significant opportunities for its next generation lighting system, HalcyonTM, through existing channels and retrofit opportunities. It is expected that, as this new business segment develops, more strategic focus will be placed on its business and financial performance, and the Group will split this performance out as a separate section in future disclosures.

Group revenue was down 13% at £3.78m (H1 2013: £4.33m) and gross profit down 12% to £1.49m (H1 2013: £1.69m). Revenues are expected to be concentrated in the second half of the year due in part to delays in new build projects during the first half of the year. This will accentuate the second half weighting in revenues that the Group already experiences, driven by seasonal increases in construction activity in domestic and export markets.

Market opportunity

Lighting accounts for 19% of global electricity usage and CO2 emissions attributable to lighting are equivalent to 70% of all global motor car CO2 emissions. The lighting market is in transition, driven by energy efficiency and lower operating costs. The benefits of LED lighting are having a large impact across many sectors.

General lighting of buildings is currently estimated to be a $70bn market worldwide with an expected compound annual growth rate of 6% between 2010-2015. It is also estimated that by 2015, LED lamps and modules will account for over 50% of general lighting light source sales. There are multiple EU and UK legislative drivers such as the Europe-wide phased banning of incandescent lamps, the code for sustainable homes and the 2013 increase in efficiency requirements for lighting included in UK building regulations.

Whilst energy savings from source replacement are significant, the addition of controls via smart lighting can improve energy savings by a further 70%.

Business review

LED Lighting Fixtures

First half revenues were down by 8% to £3.59m, from £3.92m in H1 2013. This was due mainly to delays in new build projects as a result of severe adverse weather (wide spread flooding across the UK and continental Europe). In contrast, our wholesale product sales grew significantly. This product range sells to new build, retrofit and refurbishment customers. The Group's previously announced exclusive agreement with a renowned house builder is now beginning to show a meaningful contribution, with sales also growing significantly compared to H1 2013.

The Group saw an increase in store and retail lighting trials in H1 2014, which are expected to develop into meaningful sales orders throughout the remainder of the year and beyond.

The Group supplied LED solutions to a range of diverse and high profile retrofit projects in the first half of 2014, including:

· The Bill and Melinda Gates Foundation EMEA headquarters in Victoria, London was fitted with the PhotonStar ECO600 downlight. The foundation is co-chaired by Microsoft co-founder Bill Gates and his wife and tackles critical problems across four divisions; global development, global health, the US and global policy and advocacy. The building also houses the Rolls Royce and World Fuel Organisation offices. The fittings offer excellent quality of light whilst requiring minimal maintenance.

· The Pinnington opticians practice in Cheshire chose PhotonStar LED luminaires to improve customer satisfaction and deliver a modern and refreshing atmosphere whilst offering energy savings of almost 80%. The PhotonStar solution provides accurate colour rendering to successfully represent the true colours of the high-end products on sale.

· The Torch Centre, a holiday retreat for elderly, partially sighted people, now benefits from a PhotonStar LED solution after a refurbishment took place to improve the quality of the facilities for the guests. The EcoStar fittings were chosen for their high performance and quality of light, which will assist the guests better than previous installations. The fittings were also competitively priced and suited the Centre's tight renovation budget.

LED Light Engines

First half revenues were down by 53% to £0.19m from £0.40m in H1 2013. This was primarily due to delays in the requalification of a UV product by one of our major customers, causing orders and sales to slip into the second half of the year. This requalification is now complete.

New Technology - "The HalcyonTM system"

In April 2013, PhotonStar was awarded a grant of up to £372,000 by the DECC Entrepreneurs Fund,to help fund the development of ChromaWhite smart circadian retrofit LED solutions. This was a strong validation of the Group's strategy in developing this next generation of smart circadian lighting solutions.

During the first half of 2014, Photonstar completed the technical milestones for the grant.

The Group was invited to demonstrate the HalcyonTM wireless home lighting system as part of ARM Holdings PLC's 'Seamless computing' demonstrating a future 'day in the life' scenario at the NMI Future World Symposium in April 2014.  

Shipping of Beta-test systems of the HalcyonTM next generation retrofit domestic system started in the second quarter of 2014.

Financial review

The Group's half year revenues decreased by 13% to £3.78m (2013: £4.33m) with a gross margin of 39.4% (2013: 39.1%).The maintenance of this gross margin level was achieved despite the sales mix being skewed towards traditionally lower margin revenue streams, and underscores the Group's continuing focus on improving margins.

Administrative expenses decreased by £0.20m to £2.13m (2013: £2.33m), due to continuing tight control on costs, whilst maintaining and increasing investment in R&D and Product Development.

EBITDA loss was £0.32m (2013: loss £0.33m).

The Group reported a pre-tax loss of £0.60m (2013: loss £0.61m) and loss per share for the half year was 0.4p (2013: loss per share 0.5p). The Group's unused aggregate tax losses are approximately £8m.

Group net borrowings at 30 June 2014 were £0.43m (2013: £0.32m). This comprised cash & cash equivalents of £0.24m (2012: £0.64m), offset by total drawn invoice finance borrowings of £0.67m (2012: £0.96m). The total invoice facility available to the Group is £1.3m.

Group capital expenditure was £0.30m (2013: £0.38m), mostly related to continuing investment in product development and the patent portfolio, in particular the development of the HalcyonTM lighting system.

Current trading and outlook

LED Lighting Fixtures

It is expected that sales to house builders will increase in the second half of the year, as a result of an expansion of the Group's wholesale network in H1 2014, coupled with a planned cost reduction in the Ecostar range.

The Group has, following trials in H1 2014, become an approved supplier to one of the largest facilities management companies in the UK.

Sales into the energy saving retrofit market continue to grow, and with payback now as short as three to five months for some products in our range, the Group is expecting to see retrofit become a significant part of our business in the near future.

LED Light Engines

The delays in projects experienced in H1 2014 have now been resolved, and growth in sales of UV and specialty light engines is expected in the second half of the year.

New Technology - "The HalcyonTM system"

Commercial sales of the domestic HalcyonTM system are expected to begin in late 2014. The commercial version of the HalcyonTM system is due for beta testing in the fourth quarter, with a full launch expected in 2015.

The Group's recently announced fundraising of £2.2m, from both existing shareholders and new institutional holders, will be used to maximise the significant commercial opportunities that exist for the Group with this new HalcyonTM domestic and commercial system. The Group will also be pursuing Joint Development Agreements and Licensing opportunities to accelerate the uptake of this exciting technology.

Intellectual property

PhotonStar has a substantial and growing IP platform, comprising a total of 16 patent families covering advanced LED chip design, optimal low cost packaging, and advanced colour mixing and control.

We have appointed an external organization which specializes in generating value from patents to advise us on how best to extract value from third parties for six of our chip patent families which are not core to the future of the Group. These LED chip patents, which date back to 2008 and 2009, are now mostly granted in the United Kingdom and the United States, and are progressing through Europe and the international phase.

The Group is also in the process of filing five additional patent families on connected lighting protecting the significant investments made in the development of HalyconTM.

Group outlook

Despite the weather related slow down experienced in the first half of 2014, the Group has continued to make progress, and expects this progress to continue into the second half of 2014. As with prior years, sales revenue is expected to be weighted towards the second half of the year, driven by seasonal increases in construction. In addition, the commercial launch of HalcyonTM later this year is expected to further boost the Group's prospects into 2015 and beyond. Therefore, based on current sales projections and the expected proceeds from the recent fund raise, the Board is comfortable that the Group will meet market expectations for the full year and has adequate working capital facility available to finance its anticipated growth in the second half of the year and beyond.

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

Consolidated Statement of Financial Position

As at 30 June 2014

Consolidated Statement of Cash Flows

For the six months ended 30 June 2014

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2014 (unaudited)

Notes to the financial statements

For the six months ended 30 June 2014 (unaudited)

1. Basis of preparation

These interim financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively "Adopted IFRS").

The principal accounting policies used in preparing these interim financial statements are those expected to apply to the Group's Consolidated Financial Statements for the year ending 31 December 2014 and are unchanged from those disclosed in the Group's Annual Report for the year ended 31 December 2013.

The financial information for the six months ended 30 June 2014 and 30 June 2013 is unaudited and does not constitute statutory financial statements for those periods.

The comparative financial information for the year ended 31 December 2013 is not statutory accounts within the meaning of s434 of the Companies Act 2006 but has been derived from the audited statutory financial statements for that year. The statutory accounts for the year ended 31 December 2013 have been reported on by the Company's auditor, delivered to the Registrar of Companies and have been sent to the shareholders.

The Auditor's opinion on the Group's statutory financial statements for the year ended 31 December 2013 included the following:

"Opinion on financial statements

In our opinion:

· the financial statements give a true and fair view of the state of the Group's and the Parent Company's affairs as at 31 December 2013 and of the Group's loss for the year then ended;

· the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

· the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Emphasis of matter - going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.2 to the financial statements concerning the directors' assessment of the Company's ability to continue as a going concern. The Group incurred a net loss of £651,000 during the year ended 31 December 2013 and has been loss making since incorporation. The ability of the Company and the Group to continue as going concerns is dependent on the ability of the Group overall to achieve the growth projected by the directors and on the growth being sufficient for the Company and the Group to be able to operate within cash resources and existing borrowing facilities. No additional equity or debt funding has been assumed in the cash flow projections, but should it be required there can be no guarantee either as to its availability or the terms on which it would be made available. These conditions along with other matters disclosed in note 2.2 indicate the existence of material uncertainty which may cast significant doubt about the Group's and the Company's ability to continue as going concerns. The financial statements do not include the adjustments that would result if the Group and the Company was unable to continue as going concerns."

The disclosures made in note 2.2 to the financial statements remain valid and are reproduced in full below:

"The directors have adopted the going-concern basis in preparing the financial statements for the year to 31 December 2013. In reaching this conclusion, the directors have considered for both the Company and the Group, current trading and the current and projected funding position for the period of just over 12 months from the date of approval of the financial statements through to 31 March 2015.

Current Funding

Group net debt balance at 31 December 2013 was £324,000. Since then the Group has continued to execute its business plan by:

· investing in the continuing growth of its light fixtures business and the development of new product ranges, and

· continued further investment in the ChromaWhite technology in support of bringing it to meaningful volume production and the development of the technology into the wireless retrofit lamp version known as HalcyonTM.

Projected Funding

The cash flow projections show that the Group can continue to operate utilising existing cash resources, existing borrowing facilities and anticipated innovation funding for a period of 12 months from the date the financial statements were signed.

The achievement of these projections is subject to uncertainties described below.

The projections include assumptions on the amount and timing of revenue and gross margin that the Group expects to achieve during the period of the projections. These assumptions are subject to both market and operational uncertainty.

The Group has incurred a net loss of £651,000 in the year and has been loss making since incorporation. The projections reflect the directors' expectation that the Group will be EBITDA (as calculated in Note 5) positive in 2014. To the extent there is a shortfall in revenue and/or gross margin, it is likely to be at least partially offset by a reduction in working capital requirements. Nevertheless, the ability of the Company and the Group to continue as going concerns is dependent on the ability of the Group to achieve the growth projected by the directors and on the growth being sufficient for the Company and the Group to be able to operate within their cash resource and existing borrowing facilities. No additional equity or debt funding has been assumed in the cash flow projections, but should it be required there can be no guarantee either as to its availability or the terms on which it would be made available.

Conclusion

It is acknowledged that the achievement of these projections is subject to market and operational uncertainty as outlined above and consequently there is a material uncertainty which may cast significant doubt about the Group's and Company's ability to continue as a going concerns. Nevertheless, after taking account of the Group's current funding position, its cash flow projections and the risks and uncertainties associated with these, the directors have a reasonable expectation that the Group and Company have access to adequate resources to continue in operational existence for the foreseeable future. For these reasons they continue to prepare the financial statements on a going-concern basis. These financial statements do not include any adjustments that would result from the going-concern basis of preparation being inappropriate.''

The above Emphasis of Matter does not reflect the fact that the Group recently placed £2.2milion (gross) of new shares with existing and new investors, which is expected to complete on 12th August 2014.

2. Segmental Information

The Group's reportable segments are currently LED Light Fixtures and LED Light Engines. There is no inter-segment revenue. 

Adjusted EBITDA for reportable segments is defined as EBITDA before Share Option Charge and Corporate Expense allocation.

3. Income Tax Credit

The income tax credit of £120,000 for the six months ended 30 June 2014 represents estimated research and development tax credit receivable for that period, together with an adjustment for an under provision in 2013. Excluding research and development tax credits, the effective tax rate for the Group for the year ended 31 December 2014 is expected to be zero, reflecting the availability of estimated brought forward tax losses at 31 December 2013 of £8million.

4. Earnings per share

Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding after adjusting these amounts for the effects of dilutive potential ordinary shares.

As the results for the six months ended 30 June 2014 and 30 June 2013 and for the year ended 31 December 2013 are losses, any exercise of share options would have an anti-dilutive effect on earnings per share. Consequently earnings per share and diluted earnings per share are the same as potentially dilutive share options have been excluded from the calculation.

5. Subsequent Events

Capital Reduction

At the Company's Annual General Meeting on 30 June 2014 a resolution was passed to approve a reduction in the capital of the Company by reducing the nominal value of each Ordinary share in issue from £0.10 to £0.01. When this resolution is fully implemented, there will be a resulting transfer within shareholder's equity from share capital to reserves.

On 31 July 2014, PhotonStar LED Group plc completed the legal process required to make this reduction effective.

Fund Raise

The Company expects to complete the placing of 31,400,000 shares with existing and new institutional shareholders on 12th August 2014, for a total consideration of £2,198,000 gross (approximately £2,060,000 net of costs)

6. Copies of Interim Report

Copies of this interim report are available upon request to members of the public from the Company's registered office, Unit 8 Westlink, Belbins Business Park, Cupernham Lane, Romsey, Hampshire SO51 7JF. This interim report can also be viewed on the Group's website: www.photonstarled.com.