Embargoed Release: 07:00hrs Thursday 18 June 2009
Hartest Holdings Plc
(`Hartest', the `Group' or the `Company')
Preliminary Results for the year ended 31 March 2009
Hartest Holdings plc, the supplier of specialist instrumentation and medical
equipment, announces its Preliminary Results for the year ended 31 March 2009.
Highlights:
* Group revenue £20.7 million (2008: £21.7 million)
* Group operating profit before non-recurring costs £334,000 (2008: £
1,033,000)
* Non-recurring costs of £1,117,000 primarily represent business relocation
expenses and redundancy and employment contract severance costs
* Loss before tax £865,000 (2008: profit before tax £884,000)
* Nil net debt position maintained
* Business operations soundly based and profitable
BUSINESS REVIEW
CHAIRMAN'S STATEMENT
Following the changes to our Board structure in March 2009, I have accepted the
appointment as Executive Chairman, in addition to my existing function as Chief
Executive, and I am now writing to shareholders to present the results for
2009.
Results
In line with many other companies in our industry, we have experienced a number
of challenges in the business environment this year. However, the Group was
able to react in a timely manner, and implement changes in the operational
structure and staffing levels at both subsidiary and parent company level.
Concurrently, we are continuing to implement the pre-planned and necessary
relocation of two subsidiaries.
Group revenue for the period was £20.67 million (2008: £21.72 million), and we
achieved a profit for the year on operations before non-recurring costs
amounting to £0.33 million (2008: £1.0 million).
Gross margins held firm at 34.0% compared with 34.4% in the prior year, despite
the pressure on our trading businesses from the deteriorating domestic and
international economy, and particularly by the extreme volatility in currency
exchange rates and the significant weakening during the year of the Pound
Sterling against both the US Dollar and the Euro. Overall, Group losses before
tax amounted to £0.87 million (2008: pre-tax profit £0.88 million). Operational
overheads totalled £6.70 million compared to £6.44 million last year; however,
the restructuring that occurred towards the end of the period should ensure
that significant and sustainable reductions in overheads are achieved in the
current business year.
A significant level of non-recurring and exceptional costs has been incurred
during the year, totalling £1.12 million (2008: £nil). The costs were primarily
in respect of business relocation expenses, and redundancy and employment
contract severance costs. An explanation of these non-recurring items is given
in the Operational and Financial Review below, but shareholders can be
reassured that, apart from future costs of £0.4 million (as previously
indicated, in respect of our subsidiary relocations over the next two years),
we do not anticipate any further non-recurring or exceptional items.
Cash resources remain well controlled and we maintained our nil net debt
position at both the beginning and the end of the financial year.
Dividend
In view of the requirement to fund the business relocations, the Group decided
in December 2008 that it could best serve the interest of Hartest and its
shareholders by pursuing a prudent policy of suspending dividend payments, and
no dividend was declared at the interim stage. Although the Board has
confidence in future prospects, it has decided that, for the time being, cash
resources should continue to be directed towards operational requirements, and
so the Board does not propose a final dividend. (2008: final, 1 penny per
share; interim, 0.67 pence per share).
Directorate Changes
The last twelve months have seen a number of Board changes. We welcomed Jan
Holmström to the Board as a non-executive director on 10 December 2008. On 20
March 2009, the Board announced a restructuring in order to accommodate the
changing focus of our operations and reduce central costs by a significant sum,
and Peter Ward (Chairman), Robert Porter (Group Finance Director) and Max Dyer
Bartlett (Non-Executive Director and Company Secretary) stepped down from their
directorships. At the same time, I took on the additional role of Executive
Chairman, David Kempton was appointed Deputy Chairman and Senior Independent
Non-Executive Director, and Jan Holmström was appointed as Company Secretary.
We believe that the new Board structure represents a tight and manageable unit,
which is appropriate for the business in the changed economic environment. We
thank Peter, Robert and Max for their significant contributions during their
respective periods in office.
Employees
I would like to extend my personal thanks to all of our employees, upon whose
dedication and hard work the Group relies. We are grateful for the commitment
they provide to our operations on a daily basis.
Prospects
The Group is soundly and broadly based with a solid balance sheet, tight
operating costs and no net debt. In the last year, we have borne the cost of
moving two of our operations into a new and greatly enhanced facility, which is
already showing a significant improvement in our efficiencies. Our management
teams are performing well as we exploit our wide markets and comprehensive
product ranges, and we have plans to continue the positive performance and
profit growth of our operations in the months to come.
Geoff Spink
Executive Chairman
17 June 2009
Business Review
OPERATIONAL AND FINANCIAL REVIEW
Overview
The resilience of our operations has been put to the test during the last year,
with the widely reported deterioration in the global economic climate, and a
period of extreme volatility in currency exchange rates generally coupled with
a significant weakening in the value of the Pound Sterling against both the US
Dollar and the Euro. Inevitably, this has had an impact upon a number of our
trading operations, with reduced demand from some sectors and reduced margins
due to higher import costs in other sectors. However, performance in many of
our business activities has remained strong and we also incurred non-recurring
costs in order to restructure operations and reduce operating costs in some
areas in order to lower our cost base. The individual circumstances in our
separate business operations are explained in more detail in the paragraphs
that follow.
We operate in technically specialist markets world-wide with strong positions
in a number of niche markets, which limits our exposure to any one particular
sector. This provides a sound platform for the continuing development of the
Group.
Instrumentation Division
The Instrumentation Division manufactures sells and distributes a range of
specialist instruments and supplies for use in testing, measurement,
performance improvement, and research around the world. Our brands cover
surface coatings (Sheen Instruments), rubber testing (Wallace Instruments),
temperature measurement (ASL), ophthalmic testing (Tinsley Ophthalmic and
Henson), underwater cable fault location, and electrical impulse testing
(Tinsley), power management systems for specialist vehicles (Carnation
Designs), and equipment and consumables for use with electron microscopes (Agar
Scientific).
The four operations of Sheen, Wallace, ASL and Tinsley operate jointly within
one company, Hartest Precision Instruments Limited (`Hartest Precision'), and
we have completed a number of initiatives to unify the branding formerly
operated by the four separate businesses, without any dilution to their
individual identities. Hartest Precision was previously based at two separate
locations in South London, namely Kingston and Croydon, and business operations
were inefficient and unwieldy, with significant levels of duplicated costs.
Management had planned to relocate the operation onto a single site during the
forthcoming year, but the early identification of suitable premises allowed us
to accelerate this plan, enabling an early delivery of improved operational
efficiencies and cost savings; the relocation was accomplished in a successful
move to a single site at Redhill, Surrey, in early March 2009. The lease of the
Kingston property has now expired, and we are seeking to dispose of the
freehold of the Croydon property. Hartest Precision also has a profitable and
expanding business in Delhi, India.
Looking at the year under review, all four Hartest Precision operations began
well, but in the later months, Sheen products experienced reduced demand from
the automotive and general decorative sectors. Similarly, demand was lower for
the Wallace products from the US Dollar-linked rubber and synthetic materials
sectors. Sales prospects are encouraging for the Henson ophthalmic vision field
analysers and macular pigment measurement devices, and the company anticipates
significant growth in future demand by promoting public awareness of the
possibilities for use of the Henson MPOD in treating macular deficiencies in
the eye. Hartest Precision Instruments India had a good year, supplying
equipment predominantly to the India power generating business, producing
strong results.
Carnation Designs Limited (`Carnation') enjoyed continuing success during the
year in the marketing and sale of `genisys', the company's intelligent
programmable vehicle management system, which offers advantages to both end
users and converters of specialist vehicles. Carnation continues its strong
business in the ambulance and vehicle recovery sectors, with encouraging
prospects developing in police, local authority and industrial sectors.
We had another positive year at Agar Scientific Limited (`Agar'), although
there was considerable pressure on margins resulting from the higher costs of
importing specialist microscopy instrumentation due to the hardening of the US
Dollar and Euro. Agar has reached the end of its lease on the existing facility
in Stansted, Essex, and after a considerable effort to find alternative
available premises close to the existing site, the company has now leased new
premises on the outskirts of Stansted. The facility is currently undergoing
adaptation and fit-out, and Agar intends to relocate within the next few
months.
Medical Services Division
The Medical Services Division trades under the names of Qados and Cross
Technologies, acting as a distributor in the business areas of specialist
medical and healthcare equipment, in both the public and private sectors
throughout the United Kingdom and Ireland. In addition to the sale of medical
equipment, the Division also has an active service and consumables operation,
and is engaged in the distribution of radiopharmaceuticals. Aiming to offer the
latest technology, it acts as distributor rather than manufacturer; in the
nature of such a wide portfolio business, there are constant adjustments to
product offerings, and the Division both gains and loses franchises.
We announced last year that a long-term supplier, Candela Corporation of the
US, was withdrawing the franchise for its range of specialist lasers for
aesthetic treatment and hair removal, leading to a significant reduction of
revenue within the Medical Services Division. The Division initially planned to
continue its laser sales and service activities with other suppliers, but as
this did not prove viable, the laser activity was closed during the summer of
2008, leading to redundancy payments and inventory write-down.
As a specialist import and distribution operation, selling largely to the UK
public health sector, the Medical Services Division is not always able to
secure variable pricing terms with its customers, and therefore suffered
significant pressure on margins during the current year as the import costs of
instruments and devices purchased in US Dollar and Euro currencies increased
significantly and at short notice.
The Medical Services Division continues to operate a number of attractive and
promising franchises, whilst there are also a number of initiatives to develop
new business lines. In addition, action has been taken to reduce overhead costs
in a number of areas within the business.
Group Development
Over recent years, we have stabilised the various businesses in the Group, and
each one now contributes profit and cash flow to our operations. As we move
forward, we place increasing emphasis on the continuing development and growth
of our activities.
Financial Performance
Overall, gross margins across the Group held firm at 34.0% compared with 34.4%
last year, despite the effect of the currency fluctuations referred to in the
preceding paragraphs.
Operating overheads amounted in aggregate to £6.70 million compared to £6.44
million in the previous year. However, the sustainable level of recurring
overheads will be considerably lower in the coming year as a result of both
close control and also the restructuring initiatives referred to above.
Within the Instrumentation Division, revenue reduced by 1.5% to £13.87 million
and operating profits before non-recurring costs reduced by 22.9% to £0.96
million, although Hartest Precision India gave another strong contribution. In
the Medical Services Division revenue fell by 11.0% to £6.80 million, and
operating profits before non-recurring costs were reduced from £0.35 million to
a small operating loss of £0.03 million. Across the Group, we achieved a profit
on operations before non-recurring costs for the year of £0.33 million (2008: £
1.0 million).
Non-recurring costs
During the year, a number of special and exceptional costs have been incurred,
largely with the objective of improving operating performance or reducing the
level of continuing overhead costs for the future. These are summarised below
£'000
Relocation of operations at Hartest Precision and Agar Scientific 562
Restructuring costs, including redundancy and employment severance - 138
parent company
Restructuring costs, including redundancy and employment severance - 273
trading operations
Impairment in value of property held for disposal 98
Write off of abortive transaction costs 46
Total non-recurring costs 1,117
Financial Monitoring and Management
The Board reviews Group performance against budget on a monthly basis. The key
performance indicators regularly monitored by the Board include revenue, gross
margin and overhead expenditure trends at each Group company. Working capital
utilisation is also closely monitored by regular review of stock holding
periods and debtor / creditor days. Business prospects are assessed by
reviewing rolling 3 month forecasts and order book levels supported by order
intake trends.
Liquidity
We have maintained good control over cash flows during the year, and the
debt-free position at 31 March 2008 was maintained at 30 September 2008 and 31
March 2009 respectively.
Tight control of working capital, and in particular significant reductions in
inventories at Hartest Precision, ensured that cash was available to meet
non-recurring costs and capital expenditure in a challenging year, with two
relocations underway.
Reconciliation of Net Cash Flow to Movement in Net Cash / (`Net Debt')
2009 2008
£'000 £'000
(Reduction) / Increase in cash in the year (155) 555
Cash flow from reduced debt and finance leases 76 482
Change in net debt resulting from cash flows (79) 1,037
Net cash / (debt) at the beginning of the year 90 (947)
Net cash / (debt) at end of the year 11 90
Taxation and Earnings per Share
The tax deductible nature of much of the non-recurring costs will generate
entitlement to refunds of taxation paid previously and generate tax losses that
can be claimed against future trading profits, in respect of which we have
assumed a deferred tax asset. After provision for payment of overseas taxation
on our Indian operations, there is a net credit for taxation of £0.10 million
(2008 tax charge £0.11 million).
The resulting figure of loss per share of 8.9 pence, compares with the earnings
per share of 9.0 pence in the comparative period.
Geoff Spink
Executive Chairman
17 June 2009
Hartest Holdings plc
Group Consolidated Income Statement
Year ended 31 March 2009
2009 2008
£'000 £'000
Revenue 20,671 21,724
Cost of sales (13,635) (14,248)
Gross profit 7,036 7,476
Operating expenses
Overheads (6,702) (6,443)
Operating profit before non-recurring 334 1,033
costs
Non-recurring costs (1,117) -
Total operating expenses (7,819) (6,433)
Operating (loss) / profit after (783) 1,033
non-recurring costs
Finance income 12 29
Finance costs (94) (178)
Net financing cost (82) (149)
(Loss) / Profit before tax (865) 884
Taxation 103 (113)
(Loss) / Profit for the year (762) 771
attributable to equity shareholders of
the parent company
Attributable to:
Equity shareholders of Hartest Holdings (762) 771
Plc
Earnings per share (pence):
- basic (8.85) 8.96
- diluted (8.85) 7.99
Dividends declared and paid in the year 86 144
(£'000)
All of the results above arose from continuing operations.
Consolidated Statement of Changes in Equity
Year ended 31 March 2009
Share Share Other Foreign Retained
capital premium distributable Revaluation Exchange earnings Total
reserve reserve reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 2,097 2,928 116 81 - 3,077 8,299
April 2007
Profit for - - - - - 771 771
the period
Employee - - 35 - - - 35
share-based
compensation
Dividend - - - - - (144) (144)
paid
At 31 March 2,097 2,928 151 81 - 3,704 8,961
2008
Loss for the - - - - - (762) (762)
period
Write back - - - (81) - - (81)
of
revaluation
reserve
Exchange - - - - 34 - 34
rate
movement of
net assets
Employee - - 10 - - - 10
share-based
compensation
Dividend - - - - - (86) (86)
paid
At 31 March 2,097 2,928 161 - 34 2,856 8,076
2009
Group Consolidated Balance Sheet
As at 31 March 2009
2009 2008
£'000 £'000
Assets
Non-current assets
Goodwill and intangible assets 4,061 4,083
Property, plant and equipment 833 1,652
Deferred income tax asset 141 9
5,035 5,744
Current assets
Asset classified as held for 750 -
resale
Inventories 3,042 3,855
Trade and other receivables 4,489 4,570
Cash and cash equivalents 410 565
8,691 8,990
Total assets 13,726 14,734
Equity
Share capital 2,097 2,097
Share premium 2,928 2,928
Retained earnings 2,856 3,704
Other reserves 195 232
Total equity attributable to the 8,076 8,961
Company's equity holders
Liabilities
Non-current liabilities
Borrowings 323 399
Deferred income tax liabilities 20 36
Provisions 239 -
582 435
Current liabilities
Trade and other payables 4,861 5,032
Current income tax liabilities 131 230
Borrowings 76 76
5,068 5,338
Total liabilities 5,650 5,773
Total equity and liabilities 13,726 14,734
Group Consolidated Cash Flow Statement
Year ended 31 March 2009
Group
2009 2008
£'000 £'000
(Loss) / Profit for the year (762) 771
Adjustments for:
Finance costs 82 149
Tax (103) 113
Depreciation 384 246
Amortisation of intangible assets 75 60
Share-based payments cost 10 35
Profit on sale of fixed assets (8) (58)
Decrease / (Increase) in inventory 813 (441)
Decrease in trade and other 141 294
receivables
Decrease in trade and other payables (167) (75)
Increase in provisions 239 -
Net cash generated from operating 704 1,094
activities before interest and tax
Interest paid (98) (181)
Income tax paid (204) (85)
Net cash generated from operating 402 828
activities
Cash flows from investing activities
Purchases of property, plant and (411) (322)
equipment (`PPE')
Proceeds from sale of investment - 763
property
Proceeds from sale of PPE 21 3
Purchases of intangible assets (53) (121)
Interest received 12 29
Net cash (employed) / generated in (431) 352
investing activities
Cash flows from financing activities
Repayments of borrowings (76) (481)
Equity dividends paid (86) (144)
Net cash (employed) in financing (162) (625)
activities
Effect of exchange rate fluctuation 36 -
on foreign balances
Net (decrease) / increase in cash and (155) 555
cash equivalents and bank overdrafts
Cash, cash equivalents and bank 565 10
overdrafts at beginning of year
Cash, cash equivalents and bank 410 565
overdrafts at end of year
1. Basis of Preparation
The financial information presented in this Preliminary Announcement is
extracted from, and is consistent with, the Group's audited financial
statements for the year ended 31 March 2009. The information presented does not
constitute statutory accounts of the Group or of the Company within the meaning
of section 240 of the Companies Act 1985. The financial statements for the
year ended 31 March 2009 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors' report on those
financial statements is unqualified and does not contain any statement under
section 237 of the Companies Act 1985.
The group's audited financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as
adopted by the EU ("Adopted IFRSs").
2. Segmental Information
At 31 March 2009 the Group is organised into two main primary business
segments:
* Instrumentation - The Instrumentation Division manufactures, sells and
distributes a
range of specialist instruments and supplies for use in testing, measurement,
performance improvement and research around the world.
* Medical Services - The Medical Services Division acts as a distributor of
equipment in the
business areas of medical treatment and healthcare.
The segment results for the year ended 31 March 2009 are as follows:
Medical Central
Instrumentation Services costs Group
£'000 £'000 £'000 £'000
Revenue
Total revenue 13,870 6,801 - 20,671
Operating profit / segment result 959 (31) (594) 334
before Non-recurring costs
Non-recurring costs (see below) (621) (215) (281) (1,117)
Finance cost - net (49) (14) (19) (82)
(Loss) / Profit before income tax 289 (260) (894) (865)
Segmented operating assets 7,727 4,114 1,885 13,726
Total operating assets 7,727 4,114 1,885 13,726
Segmented operating liabilities (2,524) (2,390) (736) (5,650)
Total operating liabilities (2,524) (2,390) (736) (5,650)
Capital additions 418 46 - 464
Depreciation, amortisation and 375 84 - 459
impairment
Write-back of Revaluation Reserve 81 - - 81
Geographical Segments for the Year Ended 31 March 2009
United Europe Rest of Total
Kingdom World
£'000 £'000 £'000 £'000
Revenue 11,760 3,421 5,490 20,671
Comparative Figures for the Year Ended 31 March 2008:
Medical Central
Instrumentation Services costs Group
£'000 £'000 £'000 £'000
Revenue
Total revenue 14,082 7,642 - 21,724
Operating profit / segment 1,244 349 (560) 1,033
result
Finance cost - net (103) (26) (20) (149)
Profit / (Loss) before income 1,141 323 (580) 884
tax
Segmented operating assets 8,493 4,425 752 13,670
Total operating assets 8,493 4,425 752 13,670
Segmented operating (3,603) (2,711) (276) (6,590)
liabilities
Total operating liabilities (3,603) (2,711) (276) (6,590)
Capital additions 373 80 - 453
Depreciation and amortisation 252 54 - 306
Geographical Segments for the Year Ended 31 March 2008:
United Europe Rest of Total
Kingdom World
£'000 £'000 £'000 £'000
Revenue 12,595 3,650 5,479 21,724
Non-recurring costs
2009 2008
£'000 £'000
Relocation of operations 562 -
Restructuring costs - Group 138 -
Restructuring costs - Other 273 -
Impairment in value of property held for 98 -
disposal
Write off of abortive transaction costs 46 -
Total non-recurring costs 1,117 -
-Ends-
For Further Information:
Geoff Spink Hartest Holdings Plc 01252 749 530
Executive Chairman
Vikki Krause Hansard Group 020 7245 1100
Account Director
William Vandyk Astaire Securities 020 7448 4400
Director