E2V.L Regulatory News (E2V)

2 November 2015

e2v technologies plc

Half year results for the six months ended 30 September 2015

Delivering on 'Our vision, our future'

e2v technologies plc, announces its results for the six months ended 30 September 2015. Bringing life to technology, e2v partners with its customers to improve, save and protect people's lives. e2v delivers innovative technology for high performance systems and equipment, leading developments in automation, healthcare, communications, discovery and the environment.

Highlights

· Reported revenue growth of 7.0%, at constant exchange rates up 5.1%

· Adjusted operating profit at constant exchange rates up 9.9%, reported down 10.3%

· Progress on 'Our vision, our future'

· Interim dividend up 6.7% to 1.6 pence per share

· FY16 guidance on trading performance unchanged

Notes:

(1) Adjusted operating profit and adjusted profit before tax are before specific items.

(2) Net borrowings exclude debt issue costs.

(3) Adjusted earnings is profit before specific items less tax where applicable.

Commenting on the results, Steve Blair, Group CEO, said:

"We achieved revenue growth in the first half, consistent with our full year expectations in what were challenging markets.

Whilst we remain cautious about the broader economic environment, and assuming no deterioration in market conditions, our outlook for the current financial year remains unchanged."

SUMMARY AND OUTLOOK

We are pleased to report that e2v has delivered revenue growth and a performance in line with our expectations despite challenging trading conditions in some of our markets. We have continued to make progress during the period embedding 'Our vision, our future' and it is encouraging to see how enthusiastic our people are about bringing life to technology. Our focus is on our customers, operational excellence and simplification.

Revenue was £109.5m (H1 2015: £102.3m), representing growth of 7.0%, reflecting some modest organic growth, the benefit of AnaFocus and FX which contributed 1.8%. In Imaging good growth came from industrial vision with new products taking market share, market growth in automatic data collection and the delivery of projects in Space. In RF Power, radiotherapy benefited from continued market growth, offset by the anticipated decline in defence. As expected Semiconductors had a slow start to the year, with lower demand for microprocessors and assembly and test services in Europe offset by the flow down on programmes increasing activity for US legacy product lines and growth from data converters for new applications.

Gross profit margin was lower than the comparable period, at 38% (H1 2015: 42%). The movement in exchange rates resulted in a negative £3.0m swing versus the comparable period, with losses on the translation of working capital and on exchange contracts of £1.5m, compared with the comparable period which benefited from a gain of £1.5m. The trading performance reflected the changing revenue mix and new product introductions, which was partially offset by delivery on some of the legacy Space programmes which are at lower margins. AnaFocus performed in line with expectations.

Adjusted(1) operating profit of £15.7m (H1 2015: £17.5m) represents a margin of 14.3% (H1 2015: 17.1%). At constant exchanges rates, adjusted operating profit increased by 9.9% and margin was up at 16.4%. Good cost control offset a targeted increase in R&D. Net R&D was £6.7m, 6% of revenue (H1 2015: £6.2m).

Net borrowings at 30 September 2015 were £20.3m (H1 2015: £11.7m), after earn out payments in relation to the acquisition of AnaFocus of £1.8m, the purchase of own shares of £3.7m and new finance leases and deferred payment arrangements of £2.4m. Operating cash generation was £13.4m (H1 2015: £23.9m), with the reduction primarily due to increased inventory from strategic inventory purchases, supporting customer delivery in the second half and as part of a specific programme to reduce over concentration in the supply base in RF Power.

The Board announces an interim dividend of 1.6 pence per share. This will be paid on 17 December 2015 to e2v shareholders on the register as at 20 November 2015.

We are continuing our journey with our Safety Health Environmental Leadership Team (SHELT) programmes to provide a safe working environment for all our employees. We have been encouraged by the commitment of our employees to identify hazards and make the changes needed to proactively address risks.

Our vision of Bringing life to technology is central to how we operate. It provides the Group with our common purpose as we partner with our customers to improve, save and protect people's lives. It informs our decision making and the focus of our resources to deliver our innovation that leads developments in automation, healthcare, communications, discovery and the environment. Our goal is to double adjusted operating profit by 2020 with reference to the year ended 31 March 2015.

Our people are encouraged to use their talents to sustain innovation and supply the solutions our customers seek. We have seen new product introductions in Imaging and Semiconductors which have been well received by our customers. In our Space Imaging and RF Power customer programmes we are working at the cutting edge of the technology, delivering high quality bespoke products.

We have made progress on Project Sunrise, our site restructuring programme in Chelmsford for the RF Power division, which is consolidating the footprint and providing opportunities for improved operational efficiency. During the period we have established separate units for the specialist defence activities within RF Power in two separate facilities in Lincoln. In Space Imaging we have established the management team under the divisional president. We have also substantially completed the reorganisation in the US. We were pleased to complete the sale of our thermal imaging business in October 2015.

We continue to focus our investment where we see strong customer demand for access to technology platforms for end market sectors with medium to high single digit medium-term growth potential. These markets should also provide us with medium to high margin potential. We are prioritising our investment in four business areas: industrial vision, space, radiotherapy and semiconductors. Our highly skilled workforce is trusted by our customers to supply technically complex solutions for our customers' systems. We seek to generate growth through providing higher value solutions, new product development and new applications for our existing technologies.

To achieve our goal of doubling adjusted operating profit by 2020, with reference to the year ended 31 March 2015 we are looking for two thirds of the growth to be organic. The balance of growth is expected to come through acquisitions; we continue to build up a pipeline of possible opportunities, though the timing and terms of any deal are not possible to predict.

Our investment proposition remains to deliver revenue driven growth, by being a trusted expert partner to our customers and to maintain a resilient financial profile.

Outlook

Whilst we remain cautious about the broader economic environment, and assuming no deterioration in market conditions, our outlook for our current financial year remains unchanged.

BUSINESS OVERVIEW

Summary

Imaging

Our value proposition - what we do and our key drivers

Imaging is arranged into two business streams: Professional Imaging and Space Imaging. In Professional Imaging our value proposition is our proprietary technology and strong relationships with our major customers. In Space we have a long established heritage of over 150 space missions providing reliable, high quality and high performance visible light sensors and subsystems.

We provide high quality imaging sensors, cameras and sub-systems delivering high performance for our customers across a range of applications in the automation, healthcare, environment and discovery markets.

For Professional Imaging we provide high performance image sensors and cameras solutions in the form of customer specific products that we develop for them, as their innovation partner, or application specific standard products.

For Space we provide high performance and high quality space qualified imaging sensors and arrays for space science and astronomy applications and high speed, high resolution sensors for earth observation satellites.

Customers and markets

In Professional Imaging the industrial vision market is driven by the increased use of sensors in industrial automation where we see high single figure market growth rates. Our new product launches are making new markets and winning market share in industrial vision. AnaFocus has brought new customers and strengthened our existing relationships and provides growth through innovation leading to new product lines and winning custom programmes. In the first half, the combination of new product introduction and innovation has doubled our growth. We work for specialised OEMs who are market leaders in the application of imaging technology for factory automation, optical inspection, automatic data collection, x-ray radiography and life sciences.

In Space, governments increasingly seek to maintain independent observation capabilities and the expansion of climate change monitoring is driving a growing demand for new observation satellite programmes. We have a strong position in Europe particularly in CCD sensors and our offering remains attractive to customers due to its long proven performance in flight. The main end users are worldwide space agencies including ESA, NASA, JAXA, CSA, as well as the prime satellite manufacturers, including Astrium, Ball Aerospace, Lockheed Martin and Thales. We also provide sensors and sub-systems for use in ground based astronomy applications, where the customers are typically academic institutions.

Operational progress

We have continued to develop our relationships with the key OEMs with our ambition to be their trusted innovation partner. We have invested in our product portfolio and widened our scope of services with the integration of AnaFocus that provides customer specific CMOS sensors for a range of applications. In Space, we work closely with our customers on their technically challenging programmes, providing solutions that meet their demanding requirements on the next generation of projects, understand their requirements and innovate subject to their constraints.

Performance

Reported revenue increased by 27% to £47.4m (H1 2015: £37.4m) showing the fastest growth in the Group and now representing over 43% of Group revenue. Excluding AnaFocus, organic growth was a creditable 15%. Professional Imaging represents two thirds of the division's revenue with the balance coming from Space.  Underlying growth came from strong demand in automatic data collection, machine vision sensors and optical inspection CMOS cameras. Life science was steady reflecting end user demand remaining at similar levels to the prior year. In Space, revenue growth came through delivery on programmes, although these programmes remain technically challenging and we are continuing to commit the resources needed to improve delivery to our customers.

The division's adjusted(1) operating profit was £5.3m (H1 2015: £3.8m), an increase of 39%. Overall profit growth reflects the contribution from the revenue growth with Professional Imaging delivering mid-teens margins and in Space margins reflect the additional resources required to support customer programmes. R&D activities have been increased to drive future growth, focusing on areas of strong customer demand, in particular industrial automation and Space. In Space work in progress on programmes has increased supporting the anticipated step up in revenue in the second half.

The order book at 30 September 2015 was £100m (H1 2015: £82m). The orders due for delivery in 12 months as at 30 September 2015 were £65m (H1 2015: £62m).

RF Power

Our value proposition - what we do and our key drivers

We add value to our customers through consistently supplying reliable application specific products, addressing difficult engineering challenges and providing long-term continuity support.

We produce systems that deliver high performance and high reliability radio frequency power generation for healthcare, industrial and defence applications. The key growth drivers for the division are the increasing incidence of cancer worldwide, industrial growth and the level of defence spending.

Customers and markets

We sell to a diverse range of markets with a common need for high power radio frequency solutions. Our key market is medical radiotherapy where we work with all the leading systems suppliers. We also supply OEMs in the healthcare, automation, safety and communication markets.

In radiotherapy 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. Revenue growth is anticipated from continued new build demand, which accounts for approximately one third of the growth, and which currently has low single figure growth rates, with two thirds from growing installed base which has had higher growth rates in prior years. We continue to engage with our customers on opportunities to move up the value chain and to develop new radio frequency generating sub-systems. Our principal customers are the radiotherapy system OEMs including Accuray, Elekta and Varian.

Other applications include our commercial and industrial markets, covering radar for commercial shipping and applications such as industrial heating, industrial and dielectric welding, lasers and cargo screening. In defence, the key driver is the level of NATO defence spending. Defence budgets across the NATO countries are constrained and we do not anticipate this changing in the short-term despite global and regional threats.

Operational progress

The majority of the growth in the division is anticipated to come from radiotherapy where we continue to prioritise our investment. Our other applications continue to be driven by the general industrial cycle. Defence will remain subdued reflecting defence budgets.

During the year we have made progress on our site restructuring programme, Project Sunrise, which incorporates the new vision and brand, drives further operational efficiency, consolidates the footprint of the activities that support the portfolio and provides options for the future use of space being vacated. We anticipate that this programme will be completed over the next two years. We have also established separate units for the Lincoln based defence activities.

Performance

Reported revenue was £40.0m (H1 2015: £41.8m) with strong growth in radiotherapy reflecting increased demand from our key OEM customers, whilst absorbing some destocking, along with growth in our commercial and industrial markets. This was offset by weakness in defence with slower than anticipated programme wins and a pause in industrial processing systems.

The division's adjusted(1) operating profit was £8.9m (H1 2015: £9.4m), maintaining the margin at 22% despite the lower revenue profile. This reflects cost control and the alignment of the cost base in defence to the expected activity level. Research and development activities continue to be focused primarily on radiotherapy applications. Inventory levels have increased to support customer delivery and as part of a specific programme to reduce over concentration in the supply base and provide continuity of supply as new suppliers are qualified.

The order book at 30 September 2015 was £60m (H1 2015: £85m). The decrease reflects the cycle of the multi-year radiotherapy contracts with delivery against our contracts for our key OEM customers. We have also had a reduction in our defence order book reflecting slower than anticipated programme wins. The orders due for delivery in 12 months as at 30 September 2015 were £44m (H1 2015: £56m), reflecting lower than a full year cover for radiotherapy. We expect to renew one radiotherapy multi-year order in the final quarter of the current financial year along with securing further specific defence orders for delivery in the second half.

Semiconductors

Our value proposition - what we do and our key drivers

We provide high reliability semiconductors that meet the demanding specifications of our aerospace customers. Our design capability is enabling us to partner with customers and move up the value chain by providing multi-chip modules and boards.

Through our strategic partnerships with Freescale, Everspin, Maxim and Micron we provide a range of high reliability versions of their standard products for use in aerospace applications. Our own design high speed data converters provide market leading performance for space and radio frequency communications. We also provide our customers with continuity of supply for components that they value, avoiding risks associated with counterfeit products.

Customers and markets

We have continued to focus on meeting our customers' requirements for high reliability, excellent service and on-time delivery. We have focused on our customers by increasing our business development resources to better understand our customers' needs, co-funded developments and strengthened our relationships. We have also continued our investment in growing our key strategic partnerships.

We see continued ongoing market growth for high reliability products in civil aviation applications such as flight control computers and engine management systems, driven by civil aviation production rates which have seen high single figure growth rates. Our own designed space qualified data converters are winning market share as they enable our customers to reduce the size and weight of their satellites and at the same time increase the number of communication channels. The steady demand for products that are provided primarily into defence applications growth is driven by the flow down of funds into the large defence OEMs.

Our in-house designed high speed data converters provide market leading performance for ADCs and DACs for space RF communications. Our data converters are used by most of the major space primes and tier one suppliers, including Boeing in the US and Thales in Europe, where we enable high bandwidth radio frequency communication links. In the last 24 months we have seen increasing interest in our high reliability microprocessors for space applications that require increased levels of on-board processing.

Operational progress

We have introduced new own design high speed data converters and new multi-chip modules which enable our customers' innovation. We have also secured design-ins for our products on future programmes for civil aerospace and space applications. During the year we completed the restructuring of the US operations and this has delivered cost reduction and positions the business for the future.

Performance

Reported revenue was £22.1m (H1 2015: £23.1m). Flow down on programmes has increased activity for US legacy product lines, along with good growth coming from our own design high speed data converters for space applications. This was offset by lower demand for microprocessors. In other applications there was the anticipated decline in the legacy ASIC business as these products approach the end of their lifecycle.

The division's adjusted(1) operating profit was £5.0m (H1 2015: £5.1m), effectively flat despite the decline in revenue. This was due to improved product mix, with growth in the higher margin lines, good cost control and improved operating performance. Inventory levels have been increased both to take advantage of opportunities for strategic inventory purchases and to support the revenue step up anticipated in the second half.

The order book at 30 September 2015 was £27m (H1 2015: £23m). The order intake reflects the anticipated flow down on programmes. Orders for delivery within 12 months as at 30 September 2015 are £20m (H1 2015: £20m).

Central functions

The divisions now have end to end P&L responsibility with the core of group operations moved into the divisions. Where practical, support services are either now under divisional control or aligned with divisions. Group provides support services to the divisions across technology, operations, commercial, human resources, IT and finance, these costs are largely included within divisional performance. Central costs not allocated relate to the management of e2v technologies plc and these costs were £2.1m (H1 2015: £2.2m).

FINANCIAL REVIEW

The results for the first half of the financial year ending 31 March 2016 reflect good revenue growth and ongoing operational improvement.

Revenue was £109.5m (H1 2015: £102.3m), representing growth of 7%, reflecting modest organic growth, AnaFocus revenue of £4.4m and FX benefit of c.£2m. New business, defined as new products or new customers supplied so far in this financial year, made up approximately 14% of sales (H1 2015: 12%), from a combination of new product introduction and new customers providing the growth in existing product lines. The proportion of sales generated from sub-systems and solutions in the period was approximately 33% (H1 2015: 35%), reflecting the growth coming from industrial vision with declines in RF defence. On a rolling 12 month basis the percentage of sales outside Western Europe, at 59%, has increased marginally from the position at the end of the financial year.

Gross profit decreased by 4% to £41.5m (H1 2015: £43.3m), reflecting the revenue mix, with growth in radiotherapy, US semiconductors, space imaging and industrial vision, and lower revenue in microprocessors and RF defence. Movements in exchange rates in the period resulted in exchange losses of £1.5m on the retranslation of monetary working capital and realised gains on exchange contracts (H1 2015: gains £1.5m). The gross profit performance also reflects lower provisions for management incentives along with lower charges for inventory, reflecting improved operational performance.

Net R&D expenditure increased to £6.7m (H1 2015: £6.2m), representing 6% of revenue. Customer funded non-recurring engineering and development is growing through our space programmes and at AnaFocus.

Selling and distribution costs were steady at £8.3m (H1 2015: £8.3m). Administrative costs, excluding specific items, decreased to £10.8m (H1 2015: £11.2m), primarily reflecting lower charges for management incentives.

The adjusted(1) operating profit was £15.7m (H1 2015: £17.5m), resulting in a margin of 14.3% (H1 2015: 17.1%). At constant exchange rates adjusted operating profit was £17.7m (H1 2015: £16.1m) a margin of 16.4% (H1 2015: 15.7%).

Specific items included in administrative costs were £1.3m (H1 2015: £4.1m). Amortisation of acquired intangible assets increased to £1.4m (H1 2015: £0.9m), as a result of a full six months amortisation on the intangibles acquired with AnaFocus.  The costs associated with the acquisition of AnaFocus were £0.2m (H1 2015: £0.4m). Fair value gains on foreign exchange contracts at 30 September amounted to £1.2m (H1 2015: losses £1.2m). 

During the period we have repositioned our regional teams in the US and Asia so they are aligned with the divisions and reorganised the RF defence business for which a charge of £0.9m has been recognised.  The site consolidation programme at the Chelmsford facility is ongoing with £0.1m incurred in the period.  In the second half further restructuring is anticipated with a cost of c.£1m.

Net finance costs before specific items increased to £0.6m (H1 2015: £0.4m), reflecting interest on other debt acquired with AnaFocus. The resulting adjusted(1) profit before tax decreased to £15.1m (H1 2015: £17.1m).

Profit before tax increased by 7% to £13.8m (H1 2015: £13.0m), reflecting the lower level of specific items.

The underlying tax rate for the first half was 25% (H1 2015: 24%) due to higher proportion of profits in the US and France.  In the second half, we anticipate the continuing trend of a higher proportion of profits outside of the UK, which is likely to result in a higher effective tax rate for the full year of approximately 26%.

Adjusted(3) earnings per share decreased to 5.17p (H1 2015: 6.00p) and reported earnings per share amounted to 4.79p (H1 2015: 4.57p).

We have increased our interim dividend by 7% to 1.6 pence per share reflecting our desired payment profile of a one third, two third split between the interim and final dividend and our confidence in the full year outlook.

Operating cash flow before tax in the first half was £13.4m (H1 2015: £23.9m). The decrease reflects an outflow on working capital of £6.6m (H1 2015: inflow of £3.6m). Strong collection of receivables generated £7.7m which was offset by an outflow of £3.9m relating to trade and other payables which includes payment of management incentives relating to the prior year performance. Cash outflow on inventory was £10.3m. Tax payments were £5.3m (H1 2015: £4.6m), reflecting increased payments on account. After the cash outflow relating to the purchase of AnaFocus of £1.8m, capital expenditure, other financing costs, purchase of own shares for £3.7m, final dividends of £7.9m and movements due to exchange rates the movement in net borrowings in the period was £15.0m.

At 30 September 2015 net borrowings amounted to £20.3m (H1 2015: £11.7m). The total drawings under the bank facility arrangement were £30.0m of which £26.7m was drawn in sterling with the balance being drawn in US dollars. The unutilised facility (at 30 September 2015 exchange rates) is £62.6m.

The Group's total order book as at 30 September 2015 was £187m (30 September 2014: £190m), representing a decrease of £3m, with strong order intake, in particular in Imaging, being offset by the cycle on contracts for radiotherapy. The order book for delivery over the coming 12 months was £130m (30 September 2014: £138m), a decrease of £8m.

Principal risks and uncertainties for the second half

In compliance with the UK Corporate Governance Code, the Group has processes in place for identifying, evaluating and managing the significant risks which could have an adverse effect upon the Group's performance.

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 16 and 17 of the Annual Report and Financial Statements for the year ended 31 March 2015, a copy of which is available on the Group website at e2v.com. The Group has reviewed these risks and concluded that they adequately represent the current principal risks and uncertainties of the Group and will continue to remain relevant for the second half of the financial year. In summary, the significant risks and uncertainties faced by the Group comprise: delivery of our strategic plan, the wider political and macroeconomic conditions, advancement in technology, change management, knowledge and skills, long term contract execution, cyber security, product quality and liabilities, failure of suppliers, supply chain disruption, laws and regulations and fluctuations in exchange rates.

Independent review report to e2v technologies plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("EU"). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Mike Barradell

For and behalf of KPMG LLP

Chartered Accountants

15 Canada Square, London E14 5GL

30 October 2015

Condensed consolidated income statement

Six months ended 30 September 2015

Condensed consolidated statement of comprehensive income

Six months ended 30 September 2015

Condensed consolidated statement of financial position

As at 30 September 2015

Condensed consolidated statement of cash flows

Six months ended 30 September 2015

Condensed consolidated statement of changes in equity

Six months ended 30 September 2015

Notes to the condensed consolidated half-yearly financial statements

Six months ended 30 September 2015

1. Basis of preparation and significant accounting policies

Basis of preparation

The Group's Annual Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

These condensed half-yearly financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' and the Disclosure and Transparency Rules (DTR) of the United Kingdom's Financial Conduct Authority. The condensed half-yearly financial statements have been prepared on the going concern basis as the Directors, having considered all relevant information including the level of its current facility and covenant requirements, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

These condensed half-yearly financial statements are unaudited but have been formally reviewed by the Company's auditor and their report to the Company is set out above. The comparative figures for the financial year ended 31 March 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

These condensed half-yearly financial statements were approved by the Board of Directors on 30 October 2015.

Accounting policies

The accounting policies, presentation and methods of computation adopted are consistent with those followed in the preparation of the Group's Annual Financial Statements for the year ended 31 March 2015.

Key sources of estimation uncertainty

The preparation of the Interim Financial Statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing the condensed half-yearly financial statements, the key sources of estimation uncertainty at the balance sheet date remain the same as those that applied to the Consolidated Financial Statements for the year ended 31 March 2015.

The Directors have considered the facts and circumstances as at 30 September 2015 and concluded that there are no indicators of impairment that require an impairment review to be undertaken on goodwill at the interim statement of financial position date. The annual impairment review will be undertaken later in the financial year consistent with the timing in previous years.

2. Segment information

The Group is organised into three operating divisions which are organised and managed separately based on the key products 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:

· Imaging providing high quality sensors, cameras and sub-systems which deliver high performance for our customers across a range of applications in automation, healthcare, environment and discovery markets.

· RF Power providing high performance and high reliability radio frequency power generation for healthcare, industrial and defence applications.

· Semiconductors providing high reliability semiconductors that meet the demanding specifications of our aerospace customers. Our design capability enables us to partner with customers and provide multi-chip modules and boards.

Centre-corporate includes those unallocated costs directly associated with the management of the Group's public quotation and other related costs arising from the corporate management of the Group along with treasury related activities.

The following is an analysis of the Group's revenue, results and net assets and other information by reportable segment. There was no inter-segment trading during the period covered by these financial statements.

Geographical information

The Group's revenue from external customers and information about its non-current assets by geographical location are detailed below:

3. Specific operating items

Acquisition of AnaFocus

The Group completed the acquisition of AnaFocus in September 2014. Where payments in connection with the acquisition are dependent on future employment, they are treated as a cost of continuing employment, with £205,000 recorded in the period ended 30 September 2015 (6 months ended 30 September 2014: £50,000 and year ended 31 March 2015: £544,000). During the period ended 30 September 2015, the Group recognised a foreign exchange gain relating to the outstanding contingent consideration of £12,000 (year ended 31 March 2015: £231,000). In connection with the acquisition, one-off transaction costs of £340,000 and £446,000 were incurred in the period ended 30 September 2014 and year ended 31 March 2015, respectively.

During the period ended 30 September 2015, the Group has paid £1,778,000, representing full payment of the first two payments of contingent consideration. Two further payments remain outstanding, one of which is due for payment in the second half of the current financial year and the second payment is due for payment in the first half of the following financial year. Management continues to anticipate that the remaining target will be met in full and a liability of £1,846,000 is recorded in respect of this. Total consideration paid to 30 September 2015 is £19,686,000. The fair value of the identifiable assets acquired and liabilities assumed have now been finalised and are unchanged for those reported in note 13 of the 31 March 2015 financial statements.

Business improvement programme

During the period ended 30 September 2015, the Group has repositioned its regional teams in US and Asia so that they too are aligned with the divisions and has also reorganised RF's defence business into three distinct units. Costs, principally staff related, of £917,000 have been recognised in the period. Project Sunrise, the reorganisation of the footprint at its Chelmsford facility continues and costs of £106,000 have been incurred in the period (6 months ended 30 September 2014: £281,000, year ended 31 March 2015: £686,000).

During the year ended 31 March 2015, restructuring of the Group's central operations, RF Power and Imaging teams was undertaken. An announcement to cease manufacturing in Beijing, China during the first half of the following financial year was made prior to 31 March 2015, together with the commencement of a consultation process regarding the planned closure of the sales office in Bievres, France. Charges of £1,377,000 and £3,429,000 in the period ended 30 September 2014 and year ended 31 March 2015, respectively, were recorded in respect of these activities, principally related to staff and onerous lease costs.

Foreign currency (gains)/losses arising from fair value adjustments 

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 in the period have resulted in net fair value gain of £1,237,000 (6 months ended 30 September 2014: loss £1,221,000; year ended 31 March 2015: loss £1,873,000).

Disposal of non-core businesses

During the period ended 30 September 2015, deferred consideration relating to the sale of the Group's RF Satcom business became receivable and a gain of £50,000 has been recognised. A gain of £100,000 was recognised in the year ended 31 March 2015 in connection with this same business on the expiration of product warranties.

4. Finance costs and finance revenue

5. Income tax expense

The tax charge for the period has been calculated on the basis of the Directors' best estimate of the annual effective tax rate for the year, consistent with the previous period.

With effect from 1 April 2015, the UK government reduced the main rate of UK Corporation tax from 21% to 20%. In addition, the Finance Bill 2015 proposes to reduce the corporation tax rate to 19% with effect from 1 April 2017 and to 18% from 1 April 2020. As of 30 September 2015, since this Bill had not been substantively enacted it has not been taken into account when calculating the UK deferred tax balances as at 30 September 2015.

6. Earnings per share

Basic earnings per share is calculated by dividing net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period adjusted for the effects of dilutive options.

Adjusted earnings per share is calculated on the basis of net profit for the period before specific items. In the Directors' judgement adjusted earnings per share is considered to more appropriately reflect the underlying performance of the business period on period.

The following reflects the net profit and share data used in the earnings per share computations:

7. Dividends paid and proposed

On 30 October 2015 the Board declared an interim dividend of 1.6p per share, with a total dividend payment of £3,472,000. The interim dividend is to be paid on 17 December 2015 to shareholders registered at close of business on 20 November 2015 and is based on the number of shares in issue, excluding those held by the Employee Benefit Trust 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 the financial statements and the record date of the interim dividend.

8. Property, plant and equipment

9. Net borrowings

Non cash movements include intangible assets acquired under deferred payment arrangements (£2,449,000), finance charges on finance leases (£23,000), unwinding of discount on interest free and low interest loans (£75,000) and amortisation of debt issue costs (£135,000).

The Group has a revolving credit facility which expires on 28 July 2018. At period end exchange rates, the facility was £92,560,000 (30 September 2014: £91,097,000 and 31 March 2015: £93,176,000). Provided covenants continue to be met, the drawdowns under the revolving credit facility are at the discretion of the Group and consequently the loan is treated as non-current. At 30 September 2015, the Group had available £62,564,000 (30 September 2014: £62,920,000 and 31 March 2015: £70,676,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Net borrowings exclude unamortised debt issue costs, which amounted to £412,000 at 30 September 2015 (30 September 2014: £631,000 and 31 March 2015: £547,000).

10. Capital commitments and contingent liabilities

At 30 September 2015, the Group had capital commitments of £2,309,000 (30 September 2014: £3,383,000; 31 March 2015: £3,835,000) principally relating to the acquisition of new plant and machinery.

In the ordinary course of business, the Group may issue performance and advance payment guarantees to third parties. As at 30 September 2015 £3,276,000 (30 September 2014: £3,400,000; 31 March 2015: £3,580,000) 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.