E2V.L Regulatory News (E2V)

e2v technologies plc

Period end update

e2v technologies plc, the specialist provider of technology solutions for high performance systems, is today providing this period end update covering the six months ended 30 September 2012. The half year results will be announced on Monday 5 November 2012.

Current year trading and outlook

In July we reported that the general external environment had become more challenging in certain end user markets and this was expected to continue. Revenue for the first half is likely to be below our expectations, mitigated by the flexibility established in the cost base, ongoing restructuring and cost control.

Growth in our underlying order book, catch up on space programmes and an anticipated production order for our US defence development programme provide visibility of stronger second half revenue. Whilst we remain cautious, we anticipate a strong second half performance, and we now expect a full year trading performance marginally below our previous expectation.

Keith Attwood, Chief Executive, said:

"The business has responded well to the challenges in our end user markets and the delays experienced in order bookings. The ongoing cost control, drawing on the flexible cost base we previously put in place and implementing further restructuring, has effectively maintained the profit margin of the business. We fully appreciate the contribution our staff are making.

The modest growth in the underlying order book, progress on strategic contracts including today's news on Rio Tinto and Micron, as well as the anticipated recovery of milestones on space programmes, provide good visibility of revenue for the second half. This, combined with ongoing cost control and the strong pipeline of opportunities, supports our view that the business remains in good shape to deliver a strong second half performance, and continues to be well positioned for growth thereafter."

Trading summary

Expected revenue for the continuing business for the first half at c.£90m largely reflects the challenging external environment, with deferred orders for US and UK defence and lower intake in our commercial and industrial businesses. In space, technical challenges in the first quarter delayed the achievement of milestones, in addition to delayed order intake on one programme. There was no contribution from vermiculite systems. In the comparable period last year, revenue at £115m included 'one-off' revenue of £3.9m, revenue from the first phase of delivery against the 68k series microprocessor orders of £4.7m and revenue from the disposed businesses of £6.6m. The revenue achieved in the rest of the business is therefore expected to be lower by 9% from the comparable period.

With the lower revenue profile, we have drawn on the flexibility we previously put into our cost base and are implementing a further restructuring programme, primarily at our Chelmsford facility for the RF Power Solutions division. The actions taken have reduced the cost base by £5m in the first half and we expect an operating profit margin broadly in line with management's expectations, demonstrating the resilience of the Group.

We have achieved modest growth in our underlying order book, reflecting engagement in strategic programmes and new product introductions. Order coverage for second half revenues has improved when compared with the same period last year. We anticipate an order for our US defence development programme in the third quarter. Whilst we remain cautious, we also anticipate improved demand across our commercial and industrial business, as well as the ongoing benefit from new product introductions. Combining the visibility of potential revenue through the order book with continued cost control and further restructuring, we anticipate a strong second half trading performance.

RF power solutions

OEM demand in radiotherapy has been strong in the second quarter and we continue to supply two of our strategic customers under existing terms, whilst the multiyear contracts are being finalised. The reduction in order book relating to these multiyear orders is £9m. Electronic countermeasures has delivered good growth from the existing programmes, including the ALE-55 programme for the F18 Super Hornet. Progress is being made on our development contract for an F15 upgrade programme which we anticipate will move into production in the second half. This represents a significant opportunity for the Group and is a component in a large US/Saudi export contract.

In industrial processing systems, we have signed a development agreement with Rio Tinto, covering the design and supply of large-scale ProWave microwave and radio frequency generators for use in projects to improve the efficiency of mineral recovery. The agreement follows on from the signing of a Memorandum of Understanding (MOU) earlier this year and forms a framework under which e2v will scale up microwave generation to the scale required by Rio Tinto. Successful completion of the development phase, anticipated at 2 years, could then lead to the supply of mine-ready microwave equipment.

The vermiculite system's extended field trials have identified a number of technical challenges and we have a programme of work with the University of Nottingham to determine viability. No revenue from this application is now expected in the current financial year.

Activity has now steadied in the remaining product lines in the division, whilst being lower than the comparable period, reflecting softness of demand in commercial and industrial markets. The cost flexibility built into the business has been instrumental in materially improving operating margins. Reflecting changes in the markets for our component businesses generally, we have commenced further restructuring of our Chelmsford based operation.

High performance imaging solutions

Within High performance imaging solutions, demand for machine vision experienced some softening in the first quarter for industrial process control applications, although shows signs of steadying in the second quarter. Our new CMOS based line scan camera is well positioned for identified next generation flat panel inspection systems, including for smaller consumer electronics production. Scientific imaging is down on the comparable period reflecting lower end user demand for existing product lines although our new 8 micron high performance sensor for life science applications has performed well, securing preliminary orders from our major customers.

Space imaging is down on the comparable period despite the strong order book with technical issues being resolved in the first quarter leading to the anticipated recovery of programme milestones in the second half. We were pleased to have booked a multiyear order for China Academy of Space Technology (CAST) for the provision of imaging sensors. Though later than planned, this programme will contribute revenue in the second half.

The remaining product lines in the division have shown good growth reflecting strong demand, primarily for our dental sensors as well as our industrial CMOS sensors. Overall margins in the division reflect the reduction in 'one-off' revenue as well as the delayed milestones on space programmes.

Hi-rel semiconductor solutions

In Semiconductor Lifecycle Management (SLiM™), as anticipated, revenue is lower than the comparable period last year, which included the completion of the first phase of our 68k microprocessor SLiM™ programme. The estimated revenue from our portfolio of SLiM™ programmes has remained stable at around £20m over the coming ten years and this is not yet reflected in the order book. We continue to support strategic programme initiatives with leading defence contractors covering their at risk components.

Aerospace and defence semiconductors has benefited from two new product line introductions which have offset some softening in demand for our legacy products in the US. In Europe, customer demand is generating increased activity for assembly and test services in the second half. Current trading includes the anticipated decline in the smart sensor business. Order intake has remained steady.

We are pleased to announce that in September we signed a memorandum of understanding with Micron Technology to be an aftermarket provider of certain Micron memory products for aerospace, industrial and defence customers. This is in addition to our existing strategic partnerships with Freescale, Everspin and Maxim.

The staffing flexibility that we had established in our Grenoble business allowed us largely to accommodate the lower levels of activity, along with careful cost control in the US as we moved into the new facility in July, resulting in margins in line with our expectations despite the lower level of output.

Geographic expansion

The transfer to our new facility in the US has been completed on schedule and all production lines are operational and relevant qualifications have been completed. In Asia, we continue to build the team in China and we expect that local manufacture will commence in the second half of the year.

Order book

The underlying order book has shown modest growth when compared with last year excluding the anticipated fulfilment of last time buy orders and disposal of the non-core businesses (reduction of £6m), and delays in the cycle of radiotherapy orders (reduction of £9m). These continue under short term arrangements with two of our radiotherapy customers.

The Group's total order book as at 30 September 2012 was £138m (30 September 2011: £146m), representing a decrease of £8m. Similarly, the order book for delivery over the coming 12 months was £114m (30 September 2011: £120m), a decrease of £6m. Our sequential order book excluding the disposed of businesses is stable at £137m (31 March 2012: £136m) and our sequential 12 month order book on the same basis also remained stable.

Net borrowings

Net borrowings (see note 1) at 30 September 2012 were £28m (30 September 2011: £32m). Since 30 June 2012 net borrowings have increased by £10m, reflecting payment of dividends, fit out costs of the new US facility and increase in working capital mainly related to project delays. With the expected strong second half performance, we anticipate that the Group should return to good cash generation in the second half.

Other

We announced on 21 September 2012 that we have applied for a block listing for 3.5 million new ordinary shares, which may be issued pursuant to the exercise of options granted in 2009 under the SAYE scheme. The number of the e2v shares in issue on 30 September 2012 was 215m, of which 3.1m are held by e2v or its employee benefit trust.

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Notes to editors

1. Net borrowings exclude capitalised borrowing costs.

2. All financial information included in this release is sourced from unaudited management accounts and excludes any exceptional items.

3. Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect the Group's current expectations concerning future events and actual results may differ materially from current expectations or historical results.

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