19 May 2014 07:00
19 May 2014
e2v technologies plc
Results for the year ended 31 March 2014
e2v technologies plc, the provider of specialist technology for high performance systems and equipment, announces its results for the year ended 31 March 2014:
Results
Highlights
| Year ended 31 March 2014 £m | Year ended 31 March 2013 £m |
Revenue(1) | 217.7 | 196.8 |
Adjusted(2) operating profit | 34.7 | 32.2 |
Adjusted(2) profit before tax | 33.6 | 30.8 |
Profit before tax | 33.1 | 34.2 |
Net cash/(borrowings)(3) | 0.8 | (9.8) |
Adjusted(4) earnings per share | 11.73 p | 11.07 p |
Earnings per share | 11.59 p | 12.53 p |
Dividend | 4.4 p | 4.1 p |
· Return to growth - revenue at £217.7m, up 11% from the prior year.
· Adjusted operating profit of £34.7m, up 8% from the prior year.
· Cash generated from operations up £12.2m, with net cash balance of £0.8m.
· Full year dividend increased 7% with final dividend of 3.0 pence per share.
· Completed the board leadership change with Group CEO Steve Blair joining in March 2014.
· Profit before tax of £33.1m, 3% lower than prior year. Excluding prior year £6.8m gain on disposal of business and property, up 21%.
(1) Excludes the Group's non-core businesses disposed in May 2012 and October 2012.
(2) Adjusted operating profit and adjusted profit before tax are before specific items.
(3) Net borrowings excludes debt issue costs.
(4) Adjusted earnings is profit before specific items less tax where applicable.
Commenting on the results, Steve Blair, Group CEO said:
"I was delighted to join the business on 3 March 2014 and I am pleased to be able to report results that reflect a good performance in challenging markets, as a result of a strong finish to the year.
Over the next few months my focus is on our customers, operational excellence and to simplify how we operate. By December I anticipate setting out my plans for the evolution of the business. In terms of outlook, whilst we remain cautious about the broader economic environment, we anticipate modest revenue growth in the current financial year."
Further enquiries:
e2v technologies plc | ||
Steve Blair, Group CEO Charles Hindson, Group Finance Director | Tel: +44 (0)1245 493 493 | |
Website: www.e2v.com | ||
Bell Pottinger | ||
Elly Williamson/Charles Goodwin | Tel: +44 (0)20 7861 3117 |
CHAIRMAN'S AND GROUP CEO'S STATEMENT
Overview
This has been a year of transition for the Group as we have completed the Board leadership change. Neil has completed his first year as Chairman, welcoming Alison Wood as our new Senior Independent Director in July 2013, along with Steve as Group CEO on his arrival in March 2014. This completes the changes for the Board and positions the business to be looking forward.
We wish to thank Charles Hindson and the senior management team, along with all our staff for their commitment and support during this period of change and congratulate them on a successful year that has seen the Group returned to growth.
Performance
The Group reports revenues of £218m, an increase of 11% on last year of £197m, sustaining the level of adjusted(2) operating profit margin at 16%, resulting in adjusted earnings per share increasing 6% from 11.07p last year to 11.73p this year.
This performance reflects a strong finish to the year with increased activity in the fourth quarter in Asian industrial markets, increased demand from our US defence customers especially for semiconductors and a step up in deliveries in our UK space activities. Comparing year on year performance, we continue to see steady growth supporting our semiconductor activities, radiotherapy returning to growth in the second half after a slow start and new product introductions winning us market share in professional imaging markets for industrial, fire, security and medical. We are seeing the benefit of expanded resources increasing run rate activity in our space business.
The increased market demand has supported an increase in our self-funded research and development spend to £12.8m representing 6% of revenue, up from 5% last year, within the envelope of adjusted operating profit that increased from £32.2m to £34.7m, growth of 8%.
The performance is also reflected in the cash generation of the business, where the increased level of deliveries, on space projects in particular, has contributed to the reduction in inventory of £3.2m. The latter has supported the improved cash generation with cash generated from operations increasing £12.2m from £28.9m to £41.1m. As a result, the Group moved to a net cash position as at 31 March 2014 of £0.8m compared with net debt of £9.8m at the end of last year.
We have solid order cover for the start of the year with the 12 month order book at £128m marginally lower than the prior year at £130m. The growth has been delivered in businesses that typically have shorter order cycles, whilst we now have lower overdue orders on our space programmes as a result of our recovery programme. We start the next financial year with solid order book coverage, particularly for our semiconductor customers, full coverage from our radiotherapy customers and an active pipeline of opportunities in space and defence.
Dividend
With this performance the Board has recommended a final dividend of 3.0p, bringing the full year dividend to 4.4p, an increase of 7% from last year's full year dividend of 4.1p. This is in line with our progressive dividend policy.
Business status
We have both visited the Group's main sites across Europe, US and Asia. This has enabled us to see the business at first hand and start to meet some of our key customers. We are pleased to report that the business is in decent shape, with a strong, loyal customer base, a sound financial profile, and talented staff who are committed to developing the wide range of opportunities currently available to the Group.
During the year, the Board reviewed progress of the implementation of the Group's strategy, which has resulted in our resources for the development of our businesses being directed to those sectors where we have confidence in the potential for market growth, working directly with customers. These cover our activities in radiotherapy, imaging for industrial, medical and fire and security markets along with space applications and semiconductors. We are continuing to support customers in our industrial processes systems and electronic countermeasures as they adopt our recently developed products.
Safety, health and environment
During the year, the Board has placed emphasis on reinforcing the importance of our staff's awareness of the Group's practices for health and safety. Additional reporting has been introduced for the Board and this shows a good record for health and safety with no serious incidents during the year. In terms of the environment the Group is committed to operating in an environmentally responsible manner and we delivered a reduction in our greenhouse gas emissions despite the increased activity levels.
People
We remain committed to offering opportunities to our people and new joiners to develop their careers. Amongst our staff of 1,650, we welcome 216 new joiners, 32 of whom are on our graduate and apprentice schemes, and we congratulate 114 people who have been promoted.
We repeat our thanks to all our people for their engagement during this year of transition for the Group and their commitment and success in growth of the Group's businesses.
Board
We are very pleased that Alison Wood has joined the Board as Senior Independent Director and that she will bring her wide ranging experience in industrial and defence sectors to aid our strategic development.
The Board would also like to thank Keith Attwood for his commitment to the business over the 15 years of his tenure as Chief Executive and Tony Reading for his extensive service to the Board over nine years as our Senior Independent Director.
Next steps
Our priorities across the Group are to reinforce the focus on our customers, opportunities for operational excellence and steps to simplify our organisation and its processes. We have decided to divide the High performance imaging division into two streams, with separate leadership, to focus on our space and professional imaging markets with their operations aligned within the division.
We are also starting work on the future direction for the business and will report on our plans by December this year. Whilst we are undertaking this work, we may consider small bolt-in acquisition opportunities.
Outlook
Whilst we remain cautious about the broader economic environment, we anticipate modest revenue growth in the current financial year.
Strategic Report signed on behalf of the Board.
Neil Johnson Steve Blair
Chairman Group CEO
BUSINESS REVIEW
Summary
Revenue of £217.7m is up 11% compared with the last financial year, reflecting a return to growth, with the anticipated strong performance in the second half following the slower start to the year. We have seen continuing demand in Asia for machine vision cameras and intra-oral dental sensors, along with strong growth in space reflecting delivery on existing programmes as a result of our recovery programme, with contribution from new programmes secured in the year. We have also benefited from strong growth in thermal imaging and good growth in aerospace and defence semiconductors with increased demand in the US in the second half. In radiotherapy after a slow start we also saw growth in the second half. The movement in exchange rates accounts for less than 1% of revenue and therefore the reported figures, excluding the businesses disposed of in the prior financial year, are effectively on a like for like basis.
Adjusted(2) operating profit of £34.7m, reflects the revenue growth. The dynamics of this year's revenue are that we have seen the majority of the growth originates from sectors that are mid margin for the Group including some of our legacy space programmes. To support the growth we have increased our research and development activities, targeted where we have confidence in the potential for market growth and building on our relationships with existing customers. As part of our space recovery programme, we have added the resources needed for delivery of milestones to customers. We have also continued to increase the selling and application engineering resources in the US and Asia to support our customers in these regions.
Cash generation during the year was strong, delivering a £10.6m reduction in net borrowings; as such the Group was pleased to be able to report a net cash balance of £0.8m at 31 March 2014. The stronger operating performance was reflected in operating cash generation, which at £41.1m, is up £12.2m on the prior year. We have managed working capital whilst supporting the revenue growth benefiting from a £3.2m reduction in inventory, with an increase in strategic inventory supporting our aerospace and defence semiconductors business, more than offset by a reduction in work in progress on space programmes, along with some provisions for legacy product lines. Capital expenditure was higher than depreciation, as we have invested in our facilities supporting the growth of our space business with 460sqm of clean room space being added in the year, in addition to our normal maintenance spend.
Our closing order book at 31 March 2014 was £184m (2013: £195m) in part reflecting the cycle of our radiotherapy orders along with delivery on space and defence programmes, with a reduction in overdue orders in space. Our order book for delivery over the coming 12 months was £128m (2013: £130m). The order book provides a solid base for the coming year, reflecting that growth is anticipated in areas that typically have lower levels of order cover. Securing the orders on a timely basis to support continued growth in our space and defence business remains an area of focus.
Strategy and business model
Objective
Our objective is to be a leading global provider of innovative, specialist technology solutions for high performance long life systems.
Markets
We focus on specialist international sectors in medical, space, aerospace, defence, safety and security, along with commercial and industrial markets. We seek to generate growth through providing higher value solutions and new product development, platform life extension and upgrade, and new applications for our existing technologies. We are also supporting our global customers through our facilities in the US and Asia with our teams of in country sales and engineering specialists.
In the medical and science markets that we address, the key drivers are: ongoing demand for spares reflecting growth in the installed base, and Original Equipment Manufacturers (OEMs) that are expanding their activities in Asia with increasing local competition. Overall we estimate sustained growth in medical, with government funding for scientific research remaining steady.
The aerospace and space markets continue to benefit from demand for earth observation associated with climate change monitoring, as well as increasing demand from international markets for space science and in aerospace we are seeing steady growth in commercial aircraft production. Overall we estimate sustained growth in space from international countries and continued civil aviation demand.
In the defence markets that we address, we are seeing a shift to platform life extension and upgrade programmes in response to growing budget pressures with increasing uncertainty over programme funding. Electronic warfare and communications is receiving funding in an overall decreasing envelope. There is also a growing focus on semiconductor counterfeit and obsolescence management.
In commercial and industrial markets, capital investment remains cautious, although there are opportunities in Asia and emerging markets for new product lines. The aftermarket sectors that we address have remained steady, giving overall an estimated cyclical market which responds to the timing of capital investment.
Strategy
Our business is built on two core technologies of firstly Radio Frequency (RF) and microwave products, sub-systems and solutions and secondly semiconductor based products and solutions. Through these, we deliver technology for high performance systems at a component, sub-system and service level. We have the capability to work in regulated environments, managing security and export control and delivering to demanding specifications and high quality standards with traceability.
We continue to exploit opportunities to reposition our offerings in the value chain, moving from a component to a sub-system scope of supply, with long term service. Increasingly our customers are seeking to engage the Group on a development and advisory basis utilising the Group's highly skilled engineering teams.
We focus our investment where we are seeing strong customer pull. Within our eight key application segments we are seeing strong customer demand in space and machine vision, along with good demand for radiotherapy and aerospace and defence semiconductors including our own design high speed data converters. We are also continuing to expand our presence in the US and Asia.
We may consider acquisition opportunities. Our requirements will be that they: fit within our existing strategy; accelerate our ongoing organic growth; and be limited in scale.
Our strategy provides the opportunity for growth through our expanded markets, increased focus on our customer relationships and the opportunity to move from the supply of components to integrated sub-systems and services, so delivering a greater level of customer intimacy.
Operating model
The Group is organised into three product divisions, supported by our focus in the US and Asia, along with Group functions. The divisions deliver solutions targeted at specialist global application segments. We are often a leader in these specific applications.
The three main product divisions have responsibility for product design and development, sales and customer service and work closely with the regional teams in the US and Asia.
RF power solutions (RFP) - providing high performance electron devices, sub-systems and solutions in three main application segments: radiotherapy, electronic countermeasures and industrial processing systems. We add value to our customers though our technical knowledge, our focus on their specific requirements and long term service and support.
High performance imaging solutions (HPI) - providing advanced Charged Coupled Device (CCD) and Complementary Metal Oxide Semiconductor (CMOS) imaging sensors, cameras and solutions in three main application segments: machine vision, space imaging and scientific imaging. We add value to our customers through our technology platforms and innovative product development along with customer specific design and development services, and space qualified manufacturing capability.
Hi-rel semiconductor solutions (HRS) - providing high reliability semiconductors and services in two main application segments: aerospace and defence semiconductors, which includes hi-rel assembly, packaging and test services, extended availability of obsolete and end-of-life integrated circuits and own design high speed data converters, along with Semiconductor Lifecycle Management (SLiM™). We add value to our customers through our technology, packaging and test capabilities and by providing through life support and continuity of supply from original sources, avoiding the risk associated with counterfeit products.
US - capabilities include our facility in Milpitas, California, with plastic and ceramic hi-rel semiconductor design, assembly, test and qualification, with capability to provide RF and microwave development and camera assembly and test, as well as service for thermal imaging products. Sales and business development and support are provided nationwide.
Asia - capabilities include our network of sales offices in Hong Kong, Korea and Japan that provide sales support and application engineering across the region as well as our international purchasing office based in Taiwan. In our qualified manufacturing facility in Beijing, China, we are producing thermal imaging cameras for local markets and have capacity to support other product lines including radiotherapy and industrial cameras and sensors.
Group functions provide overall direction and resourcing and drive best practice and:
· Global operations with responsibility for all manufacturing and supply chain activity across the four main manufacturing sites based in Chelmsford (UK), Grenoble (France), Milpitas (California, US) and Beijing (China).
· Support services including group marketing and technology, finance, commercial, IT and human resources.
Outcomes and Key Performance Indicators (KPIs)
Our strategy and business model seeks to provide the opportunity for sustainable revenue growth and attractive profit margins over the longer term. We monitor revenue growth and operating profit margin for the Group and its product divisions. The level of the order book is a leading indicator of the business performance. Due to the nature of some of the Group's long term contracts the full order book can be more variable; hence the 12 month order book is our chosen measure.
We have two KPIs that measure the progress made in repositioning the Group in its value chain. The percentage of revenue from sub-systems and solutions is a measure of how the much of the Group's revenue comes from more complex products and services. Geographic reach, the percentage of revenue outside Western Europe, measures the effectiveness of our geographic expansion outside of the Group's traditional European customer base.
As a technology company we have a portfolio of products and technologies which evolves over time with new products being added and other products being withdrawn. New business proportion is a measure of the refresh within the portfolio and we consider that growth is normally achieved at a new business proportion of greater than around 12%.
Geographic focus
In the US, our facility in Milpitas provides secure wafer storage, hi-reliability assembly and test facilities and capacity for the expansion of our US RFP and HPI businesses. We have continued to strengthen our team in the US supporting our three divisions. The US team continues to develop our relationships with key customers and established strategic partners, as well as providing support to existing programmes.
In Asia we are seeing the benefits of our expanded presence which is now generating good growth in the region. We continue to expand our sales and technical teams in Hong Kong, Korea and China supporting the new product introductions particularly those targeted at industrial and medical applications and the international space business. We have established new distribution and channel partners in Japan, Korea, China and South East Asia.
RF power solutions
Financials
Revenue increased marginally to £82.3m (2013: £81.9m). Radiotherapy, after a slow start to the year, returned to growth in the second half, with the anticipated strong performance in the final quarter. Electronic countermeasures delivered good growth from its continuing programmes including the US ALE-55 programme for the F18 Super Hornet as well as the development programme for Microwave Power Modules (MPMs) for the SAAB Gripen. Industrial processing systems delivered growth from our ongoing development programme with Rio Tinto. As anticipated the activity in the remaining portfolio of products is lower than the prior year reflecting reduced demand in these mature commercial and industrial markets.
The division's adjusted(2) operating profit was £16.1m (2013: £16.9m), a decrease of 5%. This reflects the mix of revenue along with increased research and development activities.
The order book at 31 March 2014 was £100m (2013: £108m). The decrease reflects the cycle of the multi-year radiotherapy contracts with delivery against our contracts for Accuray and Elekta, partially offset by the renewal of a three year contract with Varian. We have also had a reduction in our defence order book reflecting our delivery on our key programmes. The orders due for delivery in 12 months as at 31 March 2014 were £59m (2013: £62m), a decrease of 5% broadly in line with the total order book.
Application segments
Radiotherapy
We deliver RF power systems for the generation of high energy x-rays for the treatment of cancer, high performance, high reliability products and provide the continuity for long term spares that our radiotherapy customers require. We are established as the market leader for the supply of magnetrons, thyratrons, modulators and services. Our principal customers are the radiotherapy system OEMs including Accuray, Elekta and Varian. Key drivers for the market include: the increasing incidence of cancer worldwide, for which radiotherapy is the most cost effective treatment; increasing demand in Asia for radiotherapy services; new equipment demand which is dependent on healthcare spending; the demand for spares which is driven by the growing installed base; and the spares replacement cycle which can be between five to ten years after a new system is commissioned.
The division's radiotherapy revenue was steady, in part reflecting some destocking by one of our major customers in the first half of the year, with a return to growth in the second half. For the coming years we continue to anticipate that spares revenue will grow in line with the past expansion of the installed base over the last five to ten years. Growth is anticipated to be driven by continued new build demand, which accounts for approximately one third of the growth, along with the growing installed base that underpins the other two thirds of the anticipated growth. We continue to engage with our customer base regarding moving up the value chain and developing new RF generating sub-systems.
Electronic countermeasures
We provide leading technology for platform life extension programmes and upgrades to enhance capability and provide electronic countermeasure protection of high value air, land and naval assets. We manufacture key components, such as magnetrons, coupled-cavity and helix Travelling Wave Tubes (TWTs), and, at a sub-system level, MPMs and transmitters, as well as delivering design and development services. Our products are primarily of European origin, so are not restricted under the US's International Traffic in Arms Regulation (ITAR) which is a key advantage in our international markets. In the US, our operations are authorised for defence programmes and we have expanded our US operational footprint, in support of our programmes. Key customers are the system level OEMs, including BAE Systems, EADS, Raytheon, Selex Galileo and Thales. For some novel applications we also contract directly with the end users or governmental laboratories through their technology groups.
Revenue growth in electronic countermeasures was driven by our existing programmes including the ALE-55 programme for the F18 Super Hornet. We have completed qualification of our MPM product for the SAAB Gripen. Western defence budgets are anticipated to remain subdued, although we are seeing less short term uncertainty in the US, with a continued shift to platform life extensions and upgrade programmes. Growth is anticipated to come in Europe from contracts to supply MPMs and novel systems and in the US from the current contracts and future upgrade programmes. Our MPM and ultra wideband TWT provides opportunities in Europe and the US (including in supporting foreign military sales), because of the product's size, weight and performance.
Industrial processing systems
We provide Microwave and RF generators for the processing of bulk materials. The current focus is in applications for mining, where we are providing RF generators and development support.
During the year we continued work on our development programme with Rio Tinto covering the design and supply of large-scale ProWave® microwave and RF generators for use in projects to improve the efficiency of mineral recovery. We continue to support Rio Tinto on the next phase of their development programme as they assess commercial deployment.
We have completed our investment in our research and development programme, which was part funded by the Regional Growth Fund, in conjunction with the University of Nottingham that supports this key opportunity for growth.
Other applications
The remaining portfolio of businesses in the division are principally focused on applications in commercial and industrial markets including radar for commercial shipping and industrial applications such as industrial heating, induction and dielectric welding, lasers and cargo screening.
As part of our review of this portfolio, on 17 March 2014 we completed the sale of the business and assets of our satellite communication amplifier (RF Satcom) business. The gain of £0.4m is treated as a specific item in the year.
As anticipated, revenue for the remaining businesses was lower than the prior year reflecting softer demand in industrial end user markets. We continue our site restructuring programme to drive further operational efficiency and consolidating the footprint of the activities that support this portfolio as well as providing options for the future use of the space vacated.
High performance imaging solutions
Financials
Reported revenue increased by 26% to £81.1m (2013: £64.5m). This was the fastest growing division, now representing 37% of Group revenue. Demand for machine vision cameras into automated optical inspection systems in Asia was strong with growth also coming through the take up of our recently introduced Eliixa+ CMOS camera range. Scientific imaging was steady reflecting end user demand remaining at similar levels to the prior year. In space our recovery programme has delivered good growth during the year, with a significant step up in activity level in the final quarter. The remaining businesses, including thermal imaging and dental products, have delivered strong underlying growth, from the new products introduced during the year.
The division's adjusted(2) operating profit was £11.2m (2013: £7.3m), an increase of £3.9m. This reflects the revenue growth in machine vision, space and the other applications that are mid margin businesses for the Group. On space programmes the margins reflect the delays experienced on legacy programmes which are now being completed, as well as the resources added as part of the recovery programme. Going forward, the additional resources in space provide the step up capacity to support delivery of new programmes. Research and development activities have been increased, focused in the areas of strong customer demand, in particular machine vision and space.
The order book at 31 March 2014 was £61m (2013: £63m). The modest decrease in the order book reflects delivery on space programmes with a reduction in the level of overdue orders, along with the growth coming from businesses that typically have shorter order cycles. The orders due for delivery in 12 months as at 31 March 2014 were £50m (2013: £49m), marginally up from the prior year.
Application segments
Machine vision
Our camera platforms provide sensitive, high speed performance for demanding automated optical inspection where quality and reliability are key customer requirements for applications such as semiconductor and electronics manufacturing inspection, food and beverage processing, ophthalmology and document imaging. Our products include line scan cameras for high end machine vision and optical coherence tomography ophthalmological applications based on CCD sensor technology. Each end user market has specialised inspection equipment suppliers that are e2v's customers, including for OCT/ophthalmology Canon, Carl Zeiss, Meditec and Optopol and for semiconductor and electronics Orbotech and Basler. Additionally, we access integrators via distributors and our agents.
There was strong revenue growth in machine vision reflecting good customer demand the first half, which, with a recovery in the final quarter, delivered strong growth for the year. Growth has been driven by the take up of our new CMOS based line scan cameras (including the Eliixa+), which provides high speed sensitivity and high resolution for high end inspection applications and is performing strongly. Further growth is anticipated to come from the general increase in factory automation and the drive to increase productivity and quality, as well as the investment in new manufacturing equipment for the next generation of consumer electronics. In addition, our increased sales resources in Asia provide a platform to support these important high growth markets.
Space imaging
We are a world leading supplier for space qualified, visible range, high performance imaging sensors and sub-systems for space and ground based science applications.
We have a long established heritage of providing reliable, high performance, high quality space qualified imaging sensors and arrays for space science and astronomy applications and high speed, high resolution sensors for earth observation satellites. Countries wish to maintain independent observation capabilities and the increasing investment in monitoring climate change is driving a growing demand for new observation satellite programmes. We have a strong position in Europe for these CCD sensors and our product remains attractive for this application due to the long proven performance in flight. We are continuing to develop a CMOS based technology platform which in part is funded by our £3.8m award from the UK Regional Growth Fund. We have been successful in recent years in winning programmes in the US and other international space markets including China. The main end users are worldwide space agencies including ESA, NASA, CNES and CAST, as well as the prime satellite manufacturers, including Astrium, Ball Aerospace, Lockheed Martin and Thales.
The space imaging recovery programme has delivered growth throughout the year with a step up of activity in the final quarter reflecting the delivery of milestones on a number of programmes. This business by nature will remain technically challenging as we provide leading edge technologies for scientific discovery. Current growth in space imaging is anticipated from new programmes currently under discussion with existing customers.
Scientific imaging
We provide high sensitivity, low noise sensors enabling high end scientific instruments. Our scientific imaging sensors are used in spectroscopy, microscopy, crystallography, fluoroscopy and broad scientific imaging applications. The market for high end scientific cameras is currently highly concentrated with three manufacturers, Andor, Hamamatsu and Roper, all of whom we support. We have a significant market share, proprietary technology and have strong relationships with these major customers.
Revenue in scientific imaging was steady with end user demand as anticipated, reflecting the current macroeconomic environment which is restricting government science spending.
Other applications
We support a range of other specialist applications for our technology including CMOS dental intra-oral sensors, CMOS area array sensors for use in automatic data collection systems including 2D barcode reading, andthermal imaging products.
Underlying growth has come from the continuing portfolio including the dental sensors and the new product introductions in thermal imaging. Growth, particularly in Asia, has come from new customers for our CMOS dental sensors, as increasing wealth makes dental care affordable and the move from film based to digital technology is driven by ease of use and lower running costs. During the year we launched our new product line in China with Runyes, one of the largest OEMs in the Chinese dental market. Thermal imaging is now a vital technology to support firefighting, law enforcement and security and our new hand held products provide market leading performance for their size and weight. Growth has come from an increased distributor base including Grainger in the US, along with new products for fire, security, homeland security, police and marine applications. The demand for 2D bar code reading is replacing laser technology and facilitating new applications. We have seen good growth in demand for our industrial sensors from Honeywell and Datalogic.
Hi-rel semiconductor solutions
Financials
Reported revenue increased by 8% to £54.3m (2013: £50.4m). The increase in revenue reflects strong growth from aerospace and defence semiconductors, with a recovery in demand in the US in the final quarter, along with good growth coming from our own design high speed data converters for space applications and the first revenue from our strategic relationship with Micron. In the other applications there was the anticipated decline in the legacy smart sensor business as these products approach the end of their lifecycle.
The division's adjusted(2) operating profit was £11.8m (2013: £11.3m), an increase of 4%. This was due to the increased revenue, which is at incrementally high margins. We have increased our research and development activities in Grenoble building our future platform for the next generation of products as well a qualifying the supply chain and manufacturing facilities, this is after the benefit of additional grant funding from the Programme D'Investissement D'Avenir (PIA) in France.
The order book at 31 March 2014 was £23m (2013: £24m). The order book for aerospace and defence semiconductors is strong and reflects the anticipated decline in the order book for the legacy smart sensor business. The orders for delivery within 12 months as at 31 March 2014 are £19m (2013: £19m).
The majority of the goodwill in the Group is associated with this division, with £33.8m relating to the business based in France and £21.1m relating to the business in the US. The value in use calculation for the France based business has increased during the year and the goodwill is well covered. In the US in light of current performance and in conjunction with the Group's review of the future prospects of this cash generating unit the headroom has reduced to US$6m (2013: US$22m). Sensitivity levels on these calculations indicate impairment would need to be considered if revenue were to reduce by 10% (2013: 25%); or operating margin was reduced by 2 percentage points(2013: 7 percentage points).
Application segments
Aerospace and defence semiconductors
We act as a value added channel partner through our strategic partnerships with Freescale, Everspin, Maxim and Micron where we provide a range of high reliability versions of their standard products for use in civil, space and defence applications. We utilise our market leading test, packaging and screening technology to meet the demanding specifications that our aerospace and defence customers require. We have seen growth in revenue and good order intake as a result of Freescale's end-of-life programme for the 603 family of microprocessors, where we have contracts supporting seven major defence contractors which generated some revenue in the final quarter of the year, along with a pick-up in demand in the US. We also benefited from the start of programmes supporting product from our partnership with Micron.
We also provide our customers with continuity of supply of over 4000 SMD components including many made obsolete by the original device manufacturer including redesigned end-of-life military specification integrated circuits. We provide safe long term storage, screening and test along with providing assurance of supply from original sources, avoiding risks associated with counterfeit products. The routes to market for semiconductor components are generally through distributors and we have strong relationships with two of the major worldwide component distributors, Arrow and Avnet. We have seen lower demand for these products in the US, with some recovery of demand in the final quarter.
Our own design high speed data converters provide market leading performance for analogue to digital and digital to analogue converters for space radio frequency communications. Our data converters are used by a number of customers, including Boeing in the US and Thales in Europe. We have seen growth in our own design high speed analogue data converters into space programmes, with two new programmes scheduled for delivery in the next two years.
We utilise our packaging and test facilities to offer outsourced assembly and test services to customers who require high reliability components but do not have the in-house capability for packaging and test. We have seen revenue relating to this outsourcing activity being lower during the year reflecting lower demand in our customers' end user markets.
Semiconductor lifecycle management
SLiM™ is long term, proactive assurance of continuity of supply of critical components in aerospace and defence systems, supporting platform life extension and avoiding the need for redesign and requalification. This is a proactive approach for managing critical components in aerospace and defence assets, where components became obsolete during the lifetime of the system. Our capabilities in design, supply chain management, packaging and test services, can extend the availability of otherwise obsolete semiconductors, providing our customers with the security of supply they require. The customers for SLiM™ are the large defence primes, including Raytheon Space and Airborne Systems and European OEMs on the Eurofighter Typhoon programme.
The estimated future revenue from our portfolio of SLiM™ programmes outside our order book has decreased to £20m (2013: £24m) with new programmes being added in the year being offset by a reduction in our estimate of future revenue on the Eurofighter Typhoon programme export orders.
Other applications
The other applications are in the smart sensor market for sensor signal conditioning Application Specific Integrated Circuits (ASICs) and Application Specific Standard Products (ASSPs) for applications in industrial automation, industrial detectors, automotive safety and security, engine management and climate control applications. At the time of the restructuring of our Grenoble facility we decided that we would cease the research and development activities associated with these product lines. We continue to support our customers for our legacy products with the revenue from these product lines now reflecting the anticipated decline.
Financial Review
Revenue and adjusted(2) operating profit by division were as follows:
Revenue | Adjusted(2) operating profit | ||||||
2014 | 2013 | 2014 | 2013 | ||||
£m | £m | £m | £m | ||||
RF power solutions | 82.3 | 81.9 | 16.1 | 16.9 | |||
High performance imaging solutions | 81.1 | 64.5 | 11.2 | 7.3 | |||
Hi-rel semiconductor solutions | 54.3 | 50.4 | 11.8 | 11.3 | |||
217.7 | 196.8 | 39.1 | 35.5 | ||||
Corporate centre | (4.4) | (3.3) | |||||
34.7 | 32.2 |
Review of trading performance and KPIs
The Group's revenue excluding disposal businesses was 11% higher than the last financial year, reflecting good growth in space, machine vision, aerospace and defence semiconductors, electronic countermeasures and our other imaging businesses. By geographical spread, revenue was up in all regions except for North America. In Asia Pacific revenue was up by 26%, European revenue was up by 12% and there was modest growth in the rest of the world. In North America revenue was down by 3%. Geographic reach, the proportion of revenue outside Western Europe decreased marginally to 56% (2013: 57%) reflecting the revenue growth in Europe and the lower revenue in North America. New business in the year, from new products or customers in the last three years, made up approximately 20% of revenue and business mix, which reflects the percentage of revenue from sub-systems and solutions, was up at 35% (2013: 29%).
Gross profit was £83.9m (2013: £78.1m) an increase of 7% and represented 39% of revenue (2013: 39%). In the prior year gross profit included specific items contributing £0.9m, reflecting revenue and cost of sales associated with disposed businesses. The gross profit margin being maintained reflects in part the mix of the revenue with the majority of the growth coming from mid margin businesses. Further reorganisation on our Chelmsford site will increase flexibility and add further resilience as we manage the portfolio of RF businesses supported by this facility.
Net expenditure on research and development has increased to £12.8m (2013: £10.7m) and now represents 6% of revenue. The expenditure has been focused on investment in the key programmes supporting the growth opportunities. Grant funding has increased of which the Regional Growth Fund in the UK contributed £3.5m (2013: £3.3m). We also received funding in France from the PIA of £1.4m. The main R&D programmes include, the next generation of RF generating sub-systems for radiotherapy, imaging for industrial, medical and fire and security markets, space and establishing the platform for next generation semiconductor products along with the completion of our MPM development and industrial processing systems. We continue to use subcontract resource where necessary to deliver these key programmes and also provide agility and flexibility.
Selling and distribution costs increased by 6% to £16.9m (2013: £15.9m) reflecting the higher activity levels and continued expansion in the sales teams in the US and Asia.
Administrative costs increased to £19.9m (2013: £15.9m). Administrative costs include a number of the items excluded from adjusted(2) operating profit of £0.5m (2013: credit of £2.9m) detailed below. The remaining administrative costs of £19.4m (2013: £18.8m) increased by 3% including pay review and incentives along with our expansion in Asia and the US.
Adjusted(2) operating profit
Adjusted(2) operating profit is considered to reflect more accurately the underlying performance of the business and is calculated as follows:
2014 | 2013 | |
£m | £m | |
Operating profit | 34.2 | 35.6 |
Revenue associated with disposed non-core businesses | - | (3.5) |
Cost of sales associated with disposed non-core businesses | - | 2.6 |
Research and development costs associated with disposed non-core businesses | - | 0.3 |
Selling and distribution costs associated with disposed non-core businesses | - | 0.1 |
Included in administrative costs: | ||
Amortisation of acquired intangible assets | 1.9 | 2.6 |
Change in Chief Executive Officer | 0.6 | - |
Business improvement programme expenses, net | (1.2) | 0.8 |
Disposal of non-core businesses | - | (2.3) |
Foreign currency (gains)/losses arising from fair value adjustment | (0.8) | 0.4 |
Profit on the sale of properties | - | (4.5) |
Administrative costs associated with disposed non-core businesses | - | 0.1 |
Adjusted(2) operating profit | 34.7 | 32.2 |
Adjusted(2) operating profit increased to £34.7m (2013: £32.2m) and represented 15.9% of revenue (2013: 16.4%). Return on capital employed (adjusted(2) operating profit divided by net operating assets and intangibles) was steady at 22% (2013: 22%).
Amortisation of acquired intangible assets of £1.9m has reduced from the prior year (2013: £2.6m) and reflects a number of intangible assets recognised on the acquisition of Grenoble becoming fully amortised during the year.
The restructuring of the RF power solutions business in Chelmsford, which commenced during the previous financial year continued and a net credit of £0.4m (2013: charge £1.2m) has been recorded in the year ended 31 March 2014, as the previously identified headcount reduction was achieved by the transfer of certain employees into the High performance imaging division to support the space recovery programme.
On 17 March 2014 the Group sold the RF Satcom business generating a gain of £0.4m, which was offset by a loss recognised on the sale of the non-core businesses which was completed in the prior financial year. In the prior year the trading results of the Group's non-core businesses were treated as specific items for the period.
The Group's overall foreign currency hedging policy is to put in place forward contracts to sell surplus currencies based on its trading forecasts, with the level of coverage decreasing over the next 12 months. The mark to market adjustment on this cover amounted to a gain of £0.8m (2013: loss £0.4m).
Finance charges
Net finance costs before specific items were £1.2m (2013: £1.4m), a reduction of 14% compared with the prior year reflecting the reduction in the level of debt. Of this £0.6m was non utilisation cost and amortisation of arrangement fees.
Taxation
The tax charge for the year was £8.1m (2013: £7.5m). The effective tax rate on reported profit for the year ended 31 March 2014 amounted to 24%. This reflects the reduction in the proportion of profits taxable in the UK. The tax charge in the current year has benefited from tax credits for research and development in the UK and France of £2.7m (2013: £2.1m). The effective tax rate on adjusted(2) profit before tax was 25%. Going forward we consider that the effective rate on adjusted profit will be c.26% based on the planned distribution of profits across our locations and likely benefit of R&D tax credits.
The Group generated profits in the UK, France and the US which were subject to tax at 23%, c.34% and c.40% (including state taxes) respectively.
Profit for the year
The profit for the year is £25.0m (2013: £26.7m). The level of profitability reflects the higher tax costs in the year along with the lower level of specific items in the year as the prior year included the profits on the disposal of the property and non-core businesses totaling £6.8m. We have increased our dividend by 7% broadly in line with the increase in adjusted earnings per share, in line with our progressive dividend policy. An interim dividend of 1.4 pence per share, was paid in December 2013, and final dividend of 3.0 pence per share is proposed.
Currency
Our UK and French manufacturing operations sell through the Group's global sales and distribution network, and are therefore subject to transactional and translational risks particularly in relation to the US dollar which accounts for 42% (2013: 44%) of the Group's sales. Where US dollar receipts are forecast to exceed US dollar costs, sufficient surplus US dollars are sold under foreign exchange contracts to cover costs incurred in the UK and France in accordance with the Group's hedging policy.
Cash flow and net borrowings
At 31 March 2014, the Group had a net cash balance of £0.8m (2013: net borrowings £9.8m) a reduction of £10.6m over the year (2013: £20.2m). The net cash inflow generated from operations was £41.1m, an increase of £12.2m compared with the prior year. The prior year included the sale of land for £5.9m and the proceeds from the sale of the non-core businesses of £12.0m. Working capital, which has been managed whilst supporting the revenue growth, has utilised £4.7m of cash. A reduction in inventory of £3.2m was achieved, with increased strategic inventory to support our aerospace and defence semiconductors business more than covered by reductions in work in progress on space programmes and some increased provisions on legacy product lines. Trade and other receivables have utilised £15.3m reflecting the growth in revenue and the strong performance in the final quarter, partially offset by increased in trade and other payables of £10.0m reflecting increased activity and accruals for incentives. The timing of tax payments in the UK results in tax payment in the year being lower at £6.3m (2013: £6.8m) with c.£1m to be paid out in the first quarter of the year ending 31 March 2015.
Borrowing facilities
The committed multi-currency revolving facilities are equivalent to c.£80m and were made available for 4 years from 27 July 2011. Based on the Group's performance and net borrowings as at 31 March 2014, the margin payable is 140bps and non-utilisation fees at 40% of margin.
The facility is subject to leverage and interest cover covenants. Due to the performance of the Group during the year and that the Group has a net cash balance as at 31 March 2014, there is significant headroom on both covenants.
Central functions
The costs of the central functions are allocated to the divisions. The central costs, excluding exchange differences, of £4.0m (2013: £3.5m) are the costs relating specifically to the management of e2v technologies plc which are not allocated.
Key performance indicators (KPIs)
Our KPIs to monitor financial performance have been covered in detail in the Business Review. The table below provides a summary of our KPIs. Non-financial KPIs will be discussed in detail in the Corporate Responsibility Review in the Annual Report and Financial Statements and include customer satisfaction, number of reportable accidents in the year, percentage reduction in our carbon footprint and Business in the Community (BITC) Environmental Index.
2014 | 2013 | |
Reported revenue growth/(reduction) | 11% | (10%) |
Adjusted(2) operating profit margin | 15.9% | 16.4% |
Return on capital employed | 22% | 22% |
12 month order book (reduction)/growth | (2%) | 10% |
Revenue from sub-systems and solutions | 35% | 29% |
Revenue outside of Western Europe | 56% | 57% |
New business proportion | 20% | 18% |
Consolidated income statement
Year ended 31 March 2014
2014 | 2013 | ||||||
Before specific items | Specific items (note 3) |
Total | Before specific items Restated(1) | Specific items (note 3) |
Total Restated(1) | ||
Notes | £000 | £000 | £000 | £000 | £000 | £000 | |
Revenue | 2 | 217,745 | - | 217,745 | 196,845 | 3,518 | 200,363 |
Cost of sales | (133,854) | - | (133,854) | (119,654) | (2,605) | (122,259) | |
Gross profit | 83,891 | - | 83,891 | 77,191 | 913 | 78,104 | |
Research and development costs | (12,826) | - | (12,826) | (10,423) | (252) | (10,675) | |
Selling and distribution costs | (16,895) | - | (16,895) | (15,743) | (136) | (15,879) | |
Administrative costs | (19,424) | (504) | (19,928) | (18,794) | 2,889 | (15,905) | |
Operating profit | 2 | 34,746 | (504) | 34,242 | 32,231 | 3,414 | 35,645 |
Finance costs | 4 | (1,175) | - | (1,175) | (1,448) | - | (1,448) |
Finance revenue | 4 | 15 | - | 15 | 20 | - | 20 |
Profit before taxation | 33,586 | (504) | 33,082 | 30,803 | 3,414 | 34,217 | |
Income tax expense | 5 | (8,265) | 208 | (8,057) | (7,179) | (301) | (7,480) |
Profit for the year | 25,321 | (296) | 25,025 | 23,624 | 3,113 | 26,737 | |
Attributable to: | |||||||
Equity holders of the Company | 25,321 | (296) | 25,025 | 23,624 | 3,113 | 26,737 | |
Earnings per share | |||||||
Basic | 6 | 11.73p | 11.59p | 11.07p | 12.53p | ||
Diluted | 6 | 11.60p | 11.47p | 10.94p | 12.38p |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
Consolidated statement of comprehensive income
Year ended 31 March 2014
2014 | 2013 Restated(1) | ||
£000 | £000 | ||
Profit for the year | 25,025 | 26,737 | |
Items that will not be reclassified to profit or loss | |||
Remeasurement of defined benefit liability | (28) | (296) | |
Income tax relating to items not reclassified | 9 | 100 | |
(19) | (196) | ||
Items that may be reclassified subsequently to profit or loss | |||
Exchange differences on retranslation of foreign operations | (2,862) | 1,774 | |
Exchange differences on net investment hedges | (1,999) | 1,352 | |
Less reclassification adjustments for: | |||
Exchange differences recycled to income statement on disposal of non-core businesses | - | (2,428) | |
Income tax relating to items that may be reclassified | 453 | (316) | |
(4,408) | 382 | ||
Other comprehensive (expense)/income for the year | (4,427) | 186 | |
Total comprehensive income for the year | 20,598 | 26,923 | |
Attributable to: | |||
Equity holders of the Company | 20,598 | 26,923 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
Consolidated statement of financial position
As at 31 March 2014
2014 | 2013 Restated(1) | ||
Notes | £000 | £000 | |
|
| ||
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 8 | 41,079 | 38,045 |
Intangible assets | 76,046 | 81,643 | |
Deferred income tax assets | 6,795 | 7,752 | |
Total non-current assets | 123,920 | 127,440 | |
Current assets | |||
Inventories | 39,629 | 43,954 | |
Trade and other receivables | 58,416 | 45,208 | |
Other financial assets | 531 | 40 | |
Income tax receivable | 1,314 | 1,443 | |
Cash at bank and in hand | 14,475 | 11,293 | |
Total current assets | 114,365 | 101,938 | |
Total assets | 238,285 | 229,378 | |
LIABILITIES | |||
Current liabilities | |||
Trade and other payables | (47,953) | (39,417) | |
Other financial liabilities | - | (304) | |
Income tax payable | (2,631) | (1,875) | |
Provisions | (2,640) | (6,177) | |
Total current liabilities | (53,224) | (47,773) | |
Net current assets | 61,141 | 54,165 | |
Non-current liabilities | |||
Borrowings | 9 | (13,705) | (20,758) |
Provisions | (1,134) | (693) | |
Employment and post-employment benefits | 11 | (4,744) | (4,514) |
Deferred income tax liabilities | (2,849) | (3,787) | |
Total non-current liabilities | (22,432) | (29,752) | |
NET ASSETS | 162,629 | 151,853 | |
CAPITAL AND RESERVES | |||
Called up share capital | 10,939 | 10,925 | |
Share premium | 43,153 | 42,913 | |
Merger reserve | 44,557 | 44,557 | |
Own shares reserve | (2,655) | (2,118) | |
Capital redemption reserve | 274 | 274 | |
Foreign currency translation reserve | (2,724) | 1,684 | |
Retained earnings | 69,085 | 53,618 | |
TOTAL SHAREHOLDERS' FUNDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY | 162,629 | 151,853 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
Consolidated statement of cash flows
Year ended 31 March 2014
2014 | 2013 Restated(1) | ||
Notes | £000 | £000 | |
Cash flows from operating activities | |||
Profit before tax | 33,082 | 34,217 | |
Net finance costs | 1,160 | 1,428 | |
Operating profit | 34,242 | 35,645 | |
Adjustments to reconcile to net cash inflows from operating activities | |||
Depreciation of property, plant and equipment | 8 | 7,809 | 7,806 |
Amortisation of intangible assets | 3,661 | 3,817 | |
Loss/(profit) on disposal of businesses | 3 | 30 | (2,320) |
Profit on sale of assets held for sale and property, plant and equipment | (28) | (4,532) | |
Foreign currency (gains)/losses arising from fair value adjustment | 3 | (796) | 449 |
Share based payment charges | 898 | 781 | |
Decrease in inventories | 3,230 | 196 | |
(Increase)/decrease in trade and other receivables | (15,253) | 1,331 | |
Increase/(decrease) in trade and other payables | 9,970 | (11,209) | |
Decrease in provisions | (2,677) | (3,091) | |
Cash generated from operations | 41,086 | 28,873 | |
Income taxes paid | (6,334) | (6,783) | |
Net cash flows from operating activities | 34,752 | 22,090 | |
Cash flows from investing activities | |||
Proceeds from sale of assets held for sale and property, plant and equipment | 52 | 5,934 | |
Proceeds from disposal of non-core businesses | 684 | 11,983 | |
Interest received | 15 | 20 | |
Purchases of property, plant and equipment | (11,683) | (8,949) | |
Purchases of software | (1,098) | (1,514) | |
Expenditure on product development | (749) | (838) | |
Net cash flows used in investing activities | (12,779) | 6,636 | |
Cash flows from financing activities | |||
Interest paid | (760) | (1,041) | |
Proceeds from issue of shares | 254 | 1,282 | |
Purchase of treasury shares | (2,236) | - | |
Dividends paid | 7 | (9,054) | (8,729) |
Repayment of borrowings | 9 | (6,670) | (18,169) |
Net cash flows used in financing activities | (18,466) | (26,657) | |
Net decrease in cash and cash equivalents | 9 | 3,507 | 2,069 |
Net foreign exchange difference | 9 | (325) | 274 |
Cash and cash equivalents at 1 April | 11,293 | 8,629 | |
Cash and cash equivalents at 1 April classified as assets held for sale | - | 321 | |
Total cash and cash equivalents at 1 April | 11,293 | 8,950 | |
Total cash and cash equivalents at 31 March | 9 | 14,475 | 11,293 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
Consolidated statement of changes in equity
Year ended 31 March 2014
Called up share capital |
Share premium | Merger reserve | Own shares reserve | Capital redemption reserve | Foreign currency translation reserve Restated(1) | Retained Earnings Restated(1) |
Total Equity Restated(1) | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
At 1 April 2012 | 10,747 | 41,809 | 44,557 | (2,182) | 274 | 1,302 | 34,824 | 131,331 |
Other comprehensive income | - | - | - | - | - | 382 | (196) | 186 |
Profit for the year | - | - | - | - | - | - | 26,737 | 26,737 |
Total comprehensive income | - | - | - | - | - | 382 | 26,541 | 26,923 |
Issue of shares | 178 | 1,104 | - | - | - | - | - | 1,282 |
Loss on issue of treasury shares | - | - | - | 64 | - | - | (64) | - |
Dividends paid | - | - | - | - | - | - | (8,729) | (8,729) |
Share based payment | - | - | - | - | - | - | 781 | 781 |
Tax on share based payment | - | - | - | - | - | - | 265 | 265 |
At 31 March 2013 | 10,925 | 42,913 | 44,557 | (2,118) | 274 | 1,684 | 53,618 | 151,853 |
Other comprehensive income | - | - | - | - | - | (4,408) | (19) | (4,427) |
Profit for the year | - | - | - | - | - | - | 25,025 | 25,025 |
Total comprehensive income | - | - | - | - | - | (4,408) | 25,006 | 20,598 |
Issue of shares | 14 | 240 | - | - | - | - | - | 254 |
Transfer on issue of treasury shares | - | - | - | 1,699 | - | - | (1,699) | - |
Purchase of treasury shares | - | - | - | (2,236) | - | - | - | (2,236) |
Dividends paid | - | - | - | - | - | - | (9,054) | (9,054) |
Share based payment | - | - | - | - | - | - | 898 | 898 |
Tax on share based payment | - | - | - | - | - | - | 316 | 316 |
At 31 March 2014 | 10,939 | 43,153 | 44,557 | (2,655) | 274 | (2,724) | 69,085 | 162,629 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
Notes to the audited results
Year ended 31 March 2014
1. Accounting policies
Basis of presentation
The audited results for the year ended 31 March 2014 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and applied in accordance with the provisions of The Companies Act 2006. The preliminary announcement was approved by the Board of Directors on 16 May 2014.
The financial information set out in the audited results does not constitute the Group's statutory financial statements for the year ended 31 March 2014 within the meaning of section 435 of the Companies Act 2006 and has been extracted from the full consolidated financial statements for the year ended 31 March 2014.
Statutory consolidated financial statements for the year ended 31 March 2013, which received an unqualified audit report, have been delivered to the Registrar of Companies. The reports of the auditor on the consolidated financial statements 31 March 2014 and 31 March 2013 were unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The consolidated financial statements for the year ended 31 March 2014 will be delivered to the Registrar of Companies and made available to all shareholders in due course.
The accounting policies applied in preparing these audited results are unchanged from those set out in the Group's 2013 Annual Report and Financial Statements, except as detailed below.
IAS 19 (revised 2011) and the related consequential amendments have affected the accounting for the Group's defined benefit schemes, such that the unvested past service cost, which was being charged to the income statement over the average remaining service life of the employees in the scheme, is now required to be recognised immediately.
The effect of this change has been to increase both adjusted and total profit after tax by £8,000 for the year ended 31 March 2013. The Group's employment benefit obligations have increased by £147,000 and £161,000 as at 31 March 2013 and 1 April 2012, respectively, whilst net assets have decreased by £97,000 and £106,000 as at those dates. Since the Group has always recognised actuarial gains and losses immediately, there has been no further effect on the prior periods defined employment benefit obligations. The effect of this change on the current year has been to increase both adjusted and total profit after tax by £9,000, with no material effect on earnings per share.
In addition, the Group has adopted the following new standards, amendments to standards and interpretations issued under IFRS, the adoption of which has had no material financial effect on the Group for the current period:
· IAS 1, 'Presentation of Items of Other Comprehensive Income' (Amendments to IAS 1)
· IFRS 7, 'Disclosures - Offsetting Financial Assets and Financial Liabilities' (Amendments to IFRS 7)
· IAS 13, 'Fair Value Measurement'
· Annual Improvements to IFRSs 2009-2011 Cycle.
The financial information is presented in Sterling. All values are rounded to the nearest thousand (£000) unless otherwise indicated.
In order to provide a more relevant presentation of the Group's underlying performance, profit for each financial year has been analysed between:
a) Trading results before specific items; and
b) The effect of specific items. Specific items are material items of income and expense which, in the opinion of the Directors, because of the nature or infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group's underlying performance for the financial year and are presented on the face of the income statement to facilitate comparisons with prior periods and assessments of trends in financial performance.
Specific operating items may include: business improvement programme expenses; last time build inventory provisions; gains and losses on sale of property; acquisition costs; impairments and fair value gains and losses on foreign exchange contracts; all operating items attributable to terminated or disposed operations and operations held for sale where there is a contractual agreement to sell; and amortisation of acquired intangible assets, including impairment.
Specific finance items may include: fair value gains and losses arising on interest rate swaps; realised exchange differences on the re-denomination of borrowings; and write-off of debt issue costs.
Specific tax items include the tax effect on: specific operating items; and specific finance items.
Further analysis of specific operating items are provided in note 3.
2. Segment information
The Group is organised into three operating divisions, which are organised and managed separately based on the key products that they provide. Each is treated as an operating segment and a reportable segment in accordance with IFRS 8, 'Operating Segments'.
The operating and reportable segments are:
· RF power solutions which provides high performance electron devices, sub-systems and solutions in three main application segments: radiotherapy; electronic countermeasures and industrial processing systems.
· High performance imaging solutions which provides advanced Charged Coupled Devices (CCD) and Complementary Metal Oxide Semiconductor (CMOS) imaging sensors, cameras and solutions in three main applications: machine vision, space imaging and scientific imaging.
· Hi-rel semiconductor solutions which provides high reliability semiconductors and services in two main applications: aerospace and defence semiconductors, which includes hi-rel assembly, packaging and test services, extended availability of obsolete and end-of-life integrated circuits and own design high speed data converters, along with Semiconductor Lifecycle Management (SLiMTM).
All other, reported below, includes the results of the Group's businesses which were disposed of during the year ended 31 March 2013. The results of these operations are treated as specific items. Specific revenue in the periods covered by this financial information is comprised entirely of revenue from the disposed non-core businesses.
Centre-corporate includes those unallocated costs directly associated with the management of the Group's public quotation and other related costs arising for the corporate management of the Group along with treasury related activities.
Segment revenue and results
The following is an analysis of the Group's revenue and results by reportable segment. There was no inter-segment trading during the period covered by these financial statements.
| RF power solutions |
High performance imaging solutions |
Hi-rel semi-conductor solutions |
All other |
Centre- corporate |
Total operations |
Year ended 31 March 2014 | £000 | £000 | £000 | £000 | £000 | £000 |
Revenue | ||||||
Revenue from external customers | 82,318 | 81,093 | 54,334 | - | - | 217,745 |
Segment result | ||||||
Adjusted segment profit | 16,125 | 11,202 | 11,800 | - | - | 39,127 |
Corporate costs | - | - | - | - | (3,998) | (3,998) |
Exchange differences | - | - | - | - | (383) | (383) |
Adjusted operating profit/(loss) | 16,125 | 11,202 | 11,800 | - | (4,381) | 34,746 |
Specific operating items | 867 | 1,034 | (1,925) | (472) | (8) | (504) |
Operating profit/(loss) | 16,992 | 12,236 | 9,875 | (472) | (4,389) | 34,242 |
Net finance costs | (1,160) | |||||
Profit before tax | 33,082 | |||||
Tax charge | (8,057) | |||||
Profit for the period | 25,025 | |||||
Total assets | 49,252 | 58,813 | 98,912 | - | 31,308 | 238,285 |
Total liabilities | (8,162) | (18,684) | (5,251) | - | (43,559) | (75,656) |
Restated(1) | RF power solutions |
High performance imaging solutions |
Hi-rel semi-conductor solutions |
All other |
Centre-corporate |
Total operations |
Year ended 31 March 2013 | £000 | £000 | £000 | £000 | £000 | £000 |
Revenue | ||||||
Adjusted revenue | 81,896 | 64,511 | 50,438 | - | - | 196,845 |
Specific revenue | - | - | - | 3,518 | - | 3,518 |
Revenue from external customers | 81,896 | 64,511 | 50,438 | 3,518 | - | 200,363 |
Segment result | ||||||
Adjusted segment profit | 16,857 | 7,285 | 11,337 | - | - | 35,479 |
Corporate costs | - | - | - | - | (3,493) | (3,493) |
Exchange differences | - | - | - | - | 245 | 245 |
Adjusted operating profit/(loss) | 16,857 | 7,285 | 11,337 | - | (3,248) | 32,231 |
Specific operating items | (1,226) | 270 | (2,549) | 3,001 | 3,918 | 3,414 |
Operating profit/(loss) | 15,631 | 7,555 | 8,788 | 3,001 | 670 | 35,645 |
Net finance costs | (1,428) | |||||
Profit before tax | 34,217 | |||||
Tax charge | (7,480) | |||||
Profit for the period | 26,737 | |||||
Total assets(2) | 20,016 | 32,319 | 89,080 | - | 87,963 | 229,378 |
Total liabilities(2) | - | - | - | - | (77,525) | (77,525) |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
(2) During the year, segment asset and liability information that is provided to the chief operating decision maker has been extended and the disclosure for year ended 31 March 2014 has been disclosed on this basis. It is not possible to prepare the information for the year ended 31 March 2013 on this basis and therefore that information is included on the basis that it was previously prepared.
Geographical information
The Group's revenue from external customers and information about its non-current assets by geographical location are detailed below:
2014 | 2013 | ||
£000 | £000 | ||
Revenue by destination | |||
United Kingdom | 32,530 | 31,626 | |
North America | 76,586 | 78,555 | |
Europe | 63,801 | 54,084 | |
Asia Pacific | 41,787 | 33,161 | |
Rest of the World | 3,041 | 2,937 | |
217,745 | 200,363 | ||
2014 | 2013 | ||
£000 | £000 | ||
Non-current assets (excluding taxes) | |||
United Kingdom | 39,686 | 36,788 | |
North America | 34,316 | 39,454 | |
Europe | 42,953 | 43,201 | |
Asia Pacific | 170 | 245 | |
117,125 | 119,688 | ||
3. Specific operating items
2014 | 2013 | |
£000 | £000 | |
Amortisation of acquired intangible assets | 1,934 | 2,561 |
Change in Chief Executive Officer | 608 | - |
Business improvement programme expenses, net | (1,272) | 788 |
Foreign currency (gains)/losses arising from fair value adjustment | (796) | 449 |
Disposal of businesses | 30 | (2,320) |
Operating items associated with disposed non-core business | - | (393) |
Profit on the sale of properties | - | (4,499) |
504 | (3,414) |
During the year, the previous Chief Executive Officer, K Attwood, left the Group and S Blair was appointed Group CEO. In respect of this change, costs of £608,000 were incurred for loss of office payments and recruitment, which have been treated as specific operating items.
The RF power solutions business restructuring at the Chelmsford site, which commenced during the previous financial year, has continued and a net credit of £435,000 (2013: charge £1,216,000) has been recorded in the year ended 31 March 2014, as the previously identified headcount reduction was achieved by the transfer of employees into the High performance imaging solutions business at Chelmsford, which commenced a recruitment drive in the current financial year. The business improvement programme at Grenoble continues to draw to a close with a net credit of £1,033,000 (2013: £428,000) recorded in the period, principally related to the release of receivables provision. Costs of £196,000 were incurred during the year in restructuring the Group's East Coast sales support office.
The Group, in part, hedges its exposure to foreign currency risks through the use of forward exchange contracts. The changes in the fair value of the instruments are recorded as specific items in the income statement. Fluctuations in the exchange rates have resulted in a net fair value gain of £796,000 (2013: loss £449,000).
The net loss on disposal of businesses during the year comprises a gain of £442,000 on the sale of the Group's RF Satcom business and a loss of £472,000 (2013: gain £2,320,000) relating to the sale of its non-core businesses which was completed in the prior financial year. The disposal of the Group's RF Satcom business was completed on 17 March 2014 for net proceeds of £684,000. Net assets disposed included inventory (£292,000) and warranty provisions (£50,000). The deferred consideration of £600,000 in relation to the disposal of the Group's non-core businesses was written off in the year, which was in part offset by a credit of £128,000 on the finalisation of the net assets disposed. The trading results of the Group's non-core businesses of £393,000 for the year ended 31 March 2013 were treated as specific items.
On 30 November 2012, the Group completed the sale of its surplus land at the Grenoble facility for gross proceeds of £5,887,000 and a gain of £4,499,000 was recognised.
4. Finance costs and revenue
2014 | 2013 | |
£000 | £000 | |
Bank loan interest | 736 | 1,003 |
Other interest | 6 | 5 |
Interest on defined benefit liabilities | 125 | 132 |
Amortisation of debt issue costs | 308 | 308 |
Total finance costs | 1,175 | 1,448 |
Bank interest receivable | 15 | 20 |
Total finance revenue | 15 | 20 |
5. Income tax
Major components of income tax expense charged to the income statement for the years ended 31 March 2014 and 2013 are:
2014 | 2013 Restated(1) | |
£000 | £000 | |
Current income tax | ||
Current income tax expense - UK corporation tax | 2,951 | 3,488 |
Current income tax expense - foreign tax | 4,813 | 4,649 |
Current income tax expense | 7,764 | 8,137 |
Adjustments in respect of current income tax of previous years | 267 | (85) |
Total current income tax expense | 8,031 | 8,052 |
Deferred income tax | ||
Relating to origination and reversal of temporary differences | (17) | (500) |
Adjustments in respect of deferred income tax of previous years | (96) | (114) |
Effect of change in tax rate | 139 | 42 |
Total deferred income tax expense | 26 | (572) |
Income tax expense recognised in the consolidated income statement | 8,057 | 7,480 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
A reconciliation of income tax expense applicable to the accounting profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate for the years ended 31 March 2014 and 2013 is as follows:
2014 | 2013 Restated(1) | |
£000 | £000 | |
Accounting profit before income tax | 33,082 | 34,217 |
At UK statutory income tax rate of 23% (2013: 24%) | 7,609 | 8,215 |
Permanent differences | 504 | (423) |
Tax relief on research and development | (2,740) | (2,060) |
Effect of higher taxes on overseas earnings | 2,058 | 1,682 |
Share based payments | 80 | 30 |
Unrecognised deferred tax in respect of losses | 236 | 193 |
Adjustments in respect of current income tax of previous years | 267 | (85) |
Adjustments in respect of deferred income tax of previous years | (96) | (114) |
Change in tax rate | 139 | 42 |
Total tax expense reported in the consolidated income statement | 8,057 | 7,480 |
(1) Restated to reflect the adoption of amendments to IAS 19 Employee Benefits, see note 1 to the audited results.
The UK government Finance Bill 2013, which was substantively enacted on 17 July 2013, reduced the UK corporation tax rate to 21% from 1 April 2014 and to 20% from 1 April 2015. The UK deferred tax balances as at 31 March 2014 have therefore been calculated based on the reduced corporation tax rates of either 21% or 20%, using the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.
6. Earnings per share
Basic earnings per share is calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of dilutive options.
Adjusted earnings per share is calculated on the basis of net profit for the year before specific items. In the Directors' judgement adjusted earnings per share is considered to more appropriately reflect the underlying performance of the business year on year.
The following reflects the net profit and share data used in the basic and diluted earnings per share computations:
2014 | 2013 | |
£000 | £000 | |
Profit for the year | 25,025 | 26,737 |
Amortisation of acquired intangible assets | 1,934 | 2,561 |
Change in Chief Executive Officer | 608 | - |
Business improvement programme expenses, net | (1,272) | 788 |
Foreign currency (gains)/losses arising from fair value adjustment | (796) | 449 |
Disposal of businesses | 30 | (2,320) |
Operating items associated with disposed non-core business | - | (393) |
Profit on the sale of properties | - | (4,499) |
Tax effect of the above | (208) | 301 |
Profit before specific items attributable to ordinary shareholders | 25,321 | 23,624 |
2014 | 2013 | |
No. 000 | No. 000 | |
Weighted average number of ordinary shares | ||
For basic EPS | 215,928 | 213,246 |
Effect of dilution: | ||
Share options | 2,324 | 2,645 |
For diluted EPS | 218,252 | 215,891 |
7. Dividends paid and proposed
2014 | 2014 | 2013 | 2013 | |
Pence per share | £000 | Pence per share | £000 | |
Final dividend paid in respect of the prior year | 2.8 | 6,031 | 2.8 | 5,932 |
Interim dividend paid in respect of the current year | 1.4 | 3,023 | 1.3 | 2,797 |
4.2 | 9,054 | 4.1 | 8,729 |
The EBT and the Company have waived their right to receive dividends.
The Board recommends that a final dividend in respect of the year ended 31 March 2014 of 3.0p per share will be paid on 5 August 2014 to shareholders registered at the close of business on 11 July 2014. This dividend is subject to approval by shareholders at the Annual General Meeting and therefore the liability of approximately £6,481,000 has not been included in these financial statements. The amount is based on the number of shares in issue, excluding those held by the EBT and the Company, at the date that these financial statements have been approved and authorised for issue. The actual payment may differ due to increases or decreases in the number of shares in issue between the date of approval of these financial statements and the record date of the final dividend.
8. Property, plant and equipment
2014 | 2013 | ||||
£000 | £000 | ||||
Opening net book value | 38,045 | 36,616 | |||
Additions | 11,683 | 8,949 | |||
Depreciation | (7,809) | (7,806) | |||
Disposals | (23) | (162) | |||
Reclassifications | - | (22) | |||
Exchange adjustment | (817) | 470 | |||
Closing net book value | 41,079 | 38,045 |
9. Borrowings
2014 | 2013 | |||
£000 | £000 | |||
Non-current | ||||
Bank debt | 13,705 | 21,066 | ||
Unamortised debt issue costs | - | (308) | ||
Borrowings per the balance sheet | 13,705 | 20,758 |
Reconciliation of movement in net borrowings:
2014 | 2013 | |||
£000 | £000 | |||
Total cash and cash equivalents at beginning of the year | 11,293 | 8,950 | ||
Loans at beginning of the year | (21,066) | (38,919) | ||
Net borrowings at beginning of the year | (9,773) | (29,969) | ||
Increase in cash | 3,507 | 2,069 | ||
Repayment of borrowings | 6,670 | 18,169 | ||
Net foreign exchange difference - cash | (325) | 274 | ||
Net foreign exchange difference - loans | 691 | (316) | ||
Total movement | 10,543 | 20,196 | ||
Total cash and cash equivalents at end of the year | 14,475 | 11,293 | ||
Loans at end of the year | (13,705) | (21,066) | ||
Net cash/(borrowings) at end of the year | 770 | (9,773) |
Effective 29 July 2011, the Group signed a new revolving credit facility which expires on 27 July 2015, and which is denominated in Sterling (£54.9 million), US dollars ($33.0 million) and Euros (€5.5 million). As at 31 March 2014 exchange rates, the total facility is £79,315,000 (2013: £81,381,000). Provided covenants continue to be met, the draw down under the revolving credit facility is at the discretion of the Group and consequently the loan is treated as non-current. As at 31 March 2014, £13,705,000 (2013: £21,066,000) was drawn down under this facility.
The revolving credit facility is repaid and re-drawn at periodic intervals ranging from one to six months, with the interest rate set at each draw down date. Interest is set by reference to LIBOR plus a margin which is determined based on the level of the reported leverage covenant (defined as net borrowings: earnings before interest, tax, depreciation and amortisation).
As at 31 March 2014, the Group had available £65,610,000(2013: £60,315,000) of un-drawn committed borrowing facilities in respect of which all conditions precedent had been met.
As at 31 March 2014, unamortised debt issue costs were £nil (2013: £308,000).
As at 31 March 2014 and at 31 March 2013, the bank loans were unsecured.
10. Commitments and contingencies
Capital commitments
At 31 March 2014, the Group has commitments of £2,079,000 (2013: £2,215,000) principally relating to the acquisition of new plant and equipment.
Contingent liabilities
In the ordinary course of business, the Group may issue performance and advance payment guarantees to third parties. As at 31 March 2014, guarantees of £4,713,000 (2013: £3,760,000) were outstanding. The Directors are of the opinion that the risk to the Group associated with these guarantees is not material and consequently no provision is recorded.
The Group has received grant assistance from the UK government's Regional Growth Fund which is conditional on certain job targets being achieved in future years. The Directors are of the opinion that the risk of not achieving these targets is not material and consequently no provision is recorded for the repayment of such grants.
11. Other post-employment and other employment benefits
In addition to the state pension scheme, e2v semiconductors SAS has arrangements where there are obligations to provide termination allowances and 'Medailles du Travail' (long service awards), and e2v SAS has obligations to provide termination allowances. These are unfunded arrangements and the actuarial liability has been calculated at 31 March 2014 by a qualified actuary using the projected unit credit method. The cost of providing these benefits is charged to the income statement in the period in which those benefits have been earned by the employees. Actuarial gains and losses are recognised in full in the period in which they arise. For the termination allowance the actuarial gains and losses are recorded in other comprehensive income whereas for the long service award the actuarial gains and losses are recorded in the income statement.
As at 31 March 2014, a non-current liability of £4,744,000 (2013: £4,514,000) has been recognised with respect to the termination allowance and long service award.
12. Related party disclosures
Transactions between Group subsidiaries have been eliminated on consolidation. A list of subsidiaries can be found in the notes to e2v technologies plc, the parent company financial statements.
13. Annual General Meeting
The Annual General Meeting will be held at 9 a.m. on Wednesday 16 July 2014 at Investec Investment Banking, 2 Gresham Street, London, EC2V 7QP. Annual Report and Financial Statements will be issued to members in mid June 2014.
14. Principal risks and uncertainties
Risk Management Approach
The assessment and management of risk is a responsibility of the Board. The Group Finance Director leads the risk management process which includes a formal process for identifying, evaluating and managing the significant risks faced by the Group, organised around a three-tiered framework at the process, management and strategic levels within the organisation.
Previously identified risks, and where appropriate, their mitigation, are monitored monthly at the Board and divisional review meetings, and any newly identified risks are evaluated as required. A detailed risk review is carried out on an annual basis and presented to the Audit Committee, where the validity of the risk management process is assessed, the relevance and potential effects of the principal risks and uncertainties are reviewed, and the net risk to the Group (after mitigating controls) is evaluated and assessed relative to the risk appetite of the Group. All risks are classified based on a matrix of likelihood of occurrence compared with implications for the business, and are categorised into one of the three main risk areas of strategic and commercial, operational and corporate and financial.
Principal Risks and Uncertainties
The following is a summary of the principal risks and uncertainties identified by the Board:
· Strategic and Commercial Risks: Delivery of strategic plan, Global markets, Advancement in technology, People
· Operational Risks: Long term contract execution, Cyber security, Product quality and liabilities, Failure of suppliers, Supply chain disruption
· Corporate and Financial: Laws and regulations, Foreign currency, Credit, Liquidity, Interest rates
A full description of these risks, their potential effects on the Group, and the mitigating actions taken, will be provided in the 2014 Annual Report and Financial Statements.