Flomerics Group PLC, global supplier of simulation software to the
engineering and electronics industries, today announces its results for
the year ended 31 December 2006.
Key Points
- Turnover up 24% at £14.2 million (2005 : £11.4 million). Excluding the
acquisition in the year revenues up by 13%.
- Profit before tax, amortisation of goodwill, exceptional items and
share-based payment increased by 30% to £1.5 million (2005: £1.1 million).
- Proposed dividend increased by 8% to 1.4p per share (2005 : 1.3p)
- Cash balance at year end £2.3 million (2005: £4.1 million)
- Acquisition in July 2006 of Nika GmbH (NIKA).
- Asia Pacific and US revenues up by 20% and 16% respectively at constant
exchange rates.
- Revenues from the Electronics Cooling line of business (Flotherm and
Flo/pcb ) increased by 11% and Flovent revenues increased by 24% at
constant exchange rates.
Commenting on the results, David Mann, Chairman, said:
“With a new stable of products and excellent technology, the Group is
positioned to achieve strong growth in turnover and an increase in profit
margin.”
Enquiries:
Flomerics
Gary Carter, Chief Executive
Chris Ogle, Finance Director
|
020 8487 3000
|
Conduit PR
Laurence Read/ Christian Taylor-Wilkinson
|
020 7429 6666
|
Chairman’s Statement
Flomerics made good progress with the implementation of its growth
strategy in the year ended 31 December 2006. While significant effort was
devoted to the acquisition and integration of NIKA, the company achieved
good increases in revenue from its traditional products in US and Asia
Pacific. The management team in Europe was strengthened at the beginning
of 2007. Experience of working with NIKA since the acquisition has
confirmed assessments of the major contributions that its products and
technology can make to the future of the Group.
Results
Total revenues were up by 24% at £14.2 million (2005:£11.4 million).
Revenues, excluding those resulting from the acquisition of NIKA made
during the year, grew by 13% to £12.9 million.
Profit before tax, amortisation of goodwill, exceptional items
(of £222,000) and share-based payment increased by 30% to £1.5 million
(2005: £1.1 million). As a result of the acquisition, which we indicated
would be dilutive in the first year, earnings per share were 1.87p
(2005: 5.83p). Earnings per share before amortisation of goodwill were
5.44p (2005: 6.90p).
Cash generated from operations was 0.7 million (2005: £1.8 million).
£1.3 million of cash was used as part of the consideration for the
acquisition. Cash balances for the group at 31 December 2006 were
£2.3 million (2005: £4.1 million).
Dividend
The board is pleased with the progress being made and is proposing that
the dividend should be increased by 8% to 1.4 p per share (2006:1.3p).
Subject to approval at the Annual General Meeting, the dividend will be
paid on 25 May 2007 to shareholders on the register at 27 April 2007.
Lines of Business and regional performance
All percentages in this section are at constant exchange rates.
Revenue from our Electronics Cooling line of business (Flotherm and
Flo/pcb) increased by 11%. Revenues from the Electromagnetic Products
line of business (FLO/EMC and Micro-Stripes) grew by 4%. Flovent
revenues were up 24% and revenues related to MicReD, acquired in 2005,
were up 80%. Excluding the NIKA acquisition and the MicReD revenues,
the increase in turnover by region was: Asia Pacific 20%, US 16% and
Europe 2%.
Acquisition
On 5 July 2006 the Board announced the acquisition of Nika GmbH.
The initial consideration was £8.8 million with potential further
consideration of £3.9 million depending on the after tax results
of the Group in 2007.
The acquisition of NIKA will enable the Group to sell solutions for
a far wider range of applications whilst still providing the electronics
sector with more specialised products and services. Other benefits
include the potential to drive a higher level of sales through each of
our existing offices and the shortening of the sales cycle for the new
products. In the period from the acquisition to the end of the year,
sales from NIKA added £1.4 million to group turnover. The acquisition
has also brought some powerful new technology to the Group as well as a
highly specialised product development team, which is based in Moscow.
Board Changes
On 31 December 2006 David Tatchell, the Chief Technology Officer (CTO)
and former Chief Executive of the company stepped down from the Board.
David will continue in his role as CTO on a part-time basis. David was
the joint founder of the company in 1988 and the Board expresses its
gratitude to him for his outstanding contribution to the success of the
company.
In last year’s annual report we announced our intention to conduct a
search for a successor to Tim Morris, Non-Executive Director and Chairman
of the Audit Committee. On 24 January 2007, Tim was succeeded by Peter
Teague, who has served as Finance Director of several major international
enterprises and is currently Chairman of the Audit Committee of Ofcom.
I thank Tim for his considerable contribution to the Board for more than
ten years and, in particular, for agreeing to stay on longer than
originally intended through the acquisition of NIKA.
Outlook
The acquisition of NIKA has resulted in a step-change in the Group’s
potential and ambitions.
With a new stable of products and excellent technology, the Group is
positioned to achieve strong growth in turnover and an increase in profit
margin. As a result of the considerable investments during the last two
years, including the strengthening of our management team, the directors
are excited about the prospects for delivering a significant increase in
value to shareholders.
David Mann
Chairman
Chief Executive’s Review
2006 proved to be a transformational year for Flomerics. I can report
some considerable achievements, the most significant of which was the
acquisition of NIKA GmbH.
At the beginning of the year we set out to achieve three clear objectives.
Our first objective was to continue to drive the top line growth of our
existing product set. The second objective was to consolidate the
acquisition of MicReD which we completed in 2005, and our third objective
was to evaluate fresh acquisition opportunities. Acquisitions must meet
our twin criteria of securing world-leading technology whilst also adding
a complementary product set to our existing lines of business. I am
delighted to announce that we have successfully achieved all three of
these objectives.
Acquisition of NIKA GmbH
The acquisition of NIKA GmbH (NIKA) in July represented a significant
move for Flomerics. NIKA is a specialist software developer that provides
simulation tools for the prediction of fluid flow and heat transfer.
NIKA’s principal product is EFD.Lab; a Computational Fluid Dynamics (CFD)
simulation tool used by engineers in the design of a diverse range of
products which includes vehicles, home appliances and electronics. EFD.Lab
enables engineers to optimise their designs in the shortest possible time
and is tightly integrated with the major Mechanical Computer Aided Design
(MCAD) systems.
There is clear synergy between NIKA’s and Flomerics’ product applications.
The client lists of both companies feature big-name companies, such as
Alcatel, BAE Systems, Black & Decker, Bosch, Delphi, Intel, Mitsubishi,
Thales, Samsung, Siemens and Toyota. However, NIKA’s extensive client
base also includes DAF, Electrolux, Honda, Lufthansa, Miele, Olympus,
Pirelli, Tyco and Volkswagen. This provides the potential to cross-sell
both NIKA and Flomerics solutions into the combined client base.
Key benefits of the NIKA acquisition include:
- Ownership of world-leading CFD technology which can be applied to improve
and extend Flomerics products
- The broadening of the Flomerics business beyond electronics applications
- The opportunity to sell the NIKA products through existing Flomerics sales
operations around the world quickly and economically
- Significantly enhanced sales opportunities resulting from close technical
integration and sales collaboration with leading MCAD companies
An acquisition such as this does not happen without a great deal of work
from employees on both sides. I would therefore like to take this
opportunity to thank all the Flomerics and former Nika employees for
the contributions they made throughout the year.
Lines of Business
The acquisition of NIKA has led us to revaluate the way we organise and
drive the success of our products. This has resulted in the establishment
of three distinct areas of business focus: electronics cooling; CFD
applications; and electromagnetic products.
Electronics Cooling is the largest part of our business. Flomerics is
the market leader in the provision of software tools used by electrical
and mechanical engineers to analyse and predict temperatures in the
design of circuit boards and complete electronic systems. These software
tools are based around our market-leading FLOTHERM product and now also
include the MicReD family of products and the NIKA EFD product set.
CFD for Mechanical Applications extends Flomerics’ marketplace beyond
the world of electronics. This line of business provides software that
enables mechanical design engineers to analyse and optimise complex fluid
flow and heat transfer processes across an extremely wide range of
products and industries. In addition to NIKA’s EFD family of products,
CFD applications also includes FLOVENT which addresses the Heating,
Ventilation and Air Conditioning (HVAC) market.
Electromagnetic Products are used by engineers to simulate electromagnetic
radiation. Applications include the design of wireless equipment within
the telecommunications, military, automotive and aerospace industries and
containing the problem of electromagnetic interference, also in these
industries. Our electromagnetic products business is being given an
increased level of focus with the appointment of a dedicated line of
business manager.
Management Team
The acquisition of NIKA has brought a number of highly skilled and
experienced people into the Flomerics management team. These include
Alexander Sobachkin who manages our Moscow office. This is now our
largest office and the centre of EFD product development. Roland
Feldhinkel, the former managing director of NIKA, now manages a newly
formed product group.
We have bolstered our management team further still with the appointment
of David Barry, our new European Sales Director. David brings extensive
sales and management experience gained within the Computer Aided
Engineering sector and will be responsible for the growth of all of
our business throughout Europe.
2006 Achievements
I am delighted to be able to report on the continued improvements in
performance throughout the business. Our electronics cooling business
continues to perform strongly having achieved revenue growth of 11% over
2005.
Results for the electromagnetic business were less strong with only
modest growth over 2005. However, the business should benefit from an
increased investment in sales resources made during the later part of
2006. We have also taken steps to reduce our development costs for this
line of business by moving our two electromagnetic products to a single
platform.
Many of our individual products have performed extremely well. Revenues
for FLOVENT are up 24% and MicReD product revenues are up by 80%. The
performance of the MicReD products is especially pleasing as it
demonstrates how quickly and successfully the Flomerics sales organisation
has been able to adapt to selling new hardware-based solutions. The MicReD
product set was extended further during 2006 with the addition of the
TERALED product. This has been developed specifically in response to
demand from leading LED manufacturers and provides a unique, complete
solution for LED testing.
All geographic regions of our operations delivered sound performances.
Growth in the US was 16%, whilst Asia-Pacific grew by 20%. Japan and
South-East Asia were among our best performing territories and we
anticipate continued and accelerating sales growth within these
regions in the years ahead.
As I mentioned earlier, the acquisition of NIKA provides the opportunity
to expand our sales and marketing activities within the US whilst
achieving first-time sales within new territories. In some cases we
have been able to take advantage of the sales resources and
infrastructures we already have in place, whilst in other regions we
have invested in new sales resources. The excellent sales results
achieved during the later part of 2006 has validated our conviction
that significant opportunities exist to sell NIKA’s EFD products in
both new and existing territories.
Industry Collaboration
I have, in the past, emphasised the importance of strategic partnerships
to the continued success of Flomerics. The value and longevity of our
software solutions depend greatly on their ability to be applied to a
wide variety of design tools and applications. The acquisition of NIKA
has brought new or enhanced partnerships with a number of MCAD companies
including Dassault Systemes and PTC. Our relationship with SolidWorks
(a subsidiary of Dassault) is particularly strong and a significant share
of NIKA’s revenue has come from royalties on sales of COSMOSFloWorksTM ;
a CFD tool embedded within SolidWorksTM that is based on EFD.Lab technology.
The Future
2006 was a year of significant development for Flomerics. The addition
of new products, new customers and new people has placed us in a strong
position to achieve even greater growth across each of our areas of
business focus.
With much of the investment to capitalise on the NIKA acquisition already
in place, I am now looking forward to bringing to fruition the exciting
growth opportunities we have created. The aim is to repeat throughout
the world the same levels of success that the NIKA products have
achieved within Germany.
In 2007, we begin to share the leading technologies found in Flomerics
and NIKA products in order to realise continual improvements in
performance and breadth of application for the benefit of customers of
all our products. With a clear and determined focus on our three areas
of business, the strengthening of our sales resources and a greater
marketing presence for our EFD products world-wide, I look forward
with confidence and enthusiasm to a successful future for Flomerics,
our customers and our shareholders.
Gary Carter
Chief Executive
Operating and Financial Review
Group Financial Performance
Turnover for 2006 increased by 24% at £14.2 million. Excluding revenue
resulting from the acquisition of NIKA GmbH made during the year,
revenues were up by 13%.
Profit before tax and amortisation of goodwill, share-based payments
and exceptional items was up by 30% at £1.5 million. The charge for
the year for share-based payments was £97,000. It is a new requirement
of UK GAAP to make a charge for share-based payments and the 2005
accounts have been restated to include a charge for this of £66,000.
The results for 2006 have been impacted by exchange rates and the
weakening of the US dollar and this is expected to continue into 2007.
The average rate of exchange to the pound in 2006 was 1.843.
Exceptional costs totalled £222,000, of which approximately 50% relates
to restructuring costs arising from the acquisition.
The goodwill amortisation figure of £644,000 (2005:£158,000) includes
the sum of £456,000 which is attributable to the acquisition. This is
a pro-rated charge as the acquisition was completed at the beginning
of July 2006.
The headline tax rate is 32% (2005 restated : 4.1%). This was higher
than in 2005 because the goodwill charge is not a tax deductible expense.
Excluding the goodwill charge, the tax rate would have been just 14%.
The tax charge has been kept low because of the use of tax credits for
research and development received in the UK and the availability of tax
losses in the US. All of the tax losses arising in the US have now been
utilised. There are significant tax losses in NIKA but these have not
been reflected in these accounts as a deferred tax asset.
The net result is that basic earnings per share for 2006 were 1.87p
(2005: 5.83p). Earnings per share before amortisation of goodwill were
5.44p (2005: 6.90p)
Costs
Cost of sales, which comprise royalties paid to third-party licensors
and manufacturing costs of the Group’s hardware products for the full
year, amounted to 3.9% (2005: 2.5%) of revenue.
Research and development (R&D) costs have increased. This is primarily
due to the acquisition of NIKA which has a large R&D facility based in
Moscow. In the period since the acquisition, R&D costs in Moscow were
£547,000. R&D costs accounted for 20.8% of Group revenue (2005: 19.4%)
in the period.
Staff related costs are the Group’s biggest expense. These increased
by 23% to £7.6 million. The average number of staff increased by 40%,
from 136 to 191. At the end of the year the Group employed 235 people.
At the time of the acquisition NIKA employed 72 people, 52 of which were
based in Moscow.
Contribution from Nika
The profit and loss account for Nika shows an operating loss of £655,000.
This includes a goodwill amortisation charge of £456,000 relating to the
cost of the acquisition set out in Note 28 and certain costs which
benefited the Group. For example the Chief Executive of Nika took on the
role of European Sales Director following the acquisition and the
development operation in Moscow undertook various tasks related to
Flomerics’ legacy products. Taking these into account, it is estimated
that the actual impact on the Group’s operating profit from Nika’s
activities was a loss of about £100,000.
Cashflow and Financing
Cash generated from operating activities was £685,000 (2005: £1.8 million.).
This was lower than the 2005 figure because a very significant amount of the
Group’s turnover occurred late in the year. As a result, trade debtors were
£1.4 million higher than they were at the end of 2005.
Major non-operating cashflow included cash invested in the acquisition of NIKA
of £1.3 million; capital expenditure of £512,000 (2005: £380,000); deferred
consideration in respect of the acquisition of MicReD made in 2005 of £165,000;
and a dividend paid of £195,000 (2005:£161,000). The net decrease in cash was
£1.7 million at the year end.
The Group has borrowings of £376,000 which relate to the mortgage on a freehold
property that is being repaid over ten years. With a cash balance of £2.3 million,
net funds are £2.0 million.
Trade debtors at the end of 2006 were £4.8 million (2005: £3.4 million). Debtor
days at 31 December were 72 (2005:76.)
Share Capital
On 18 April 2006, 130,000 shares were issued to the vendors of MicReD as part of
the deferred consideration under the terms of the acquisition. On 10 May 2006
50,000 shares were issued to the vendors of MicReD pursuant to the release of
the retained consideration due to the vendors.
On 7 July 2006 6,293,000 shares were issued to the vendors of
NIKA GmbH as part of the consideration under the terms of the
acquisition. A further 1,265,000 shares were retained, and will
not be issued until the expiry of the warranty period.
In order to facilitate the issue of shares to the vendors of NIKA,
the Group’s authorised share capital was increased from £200,000
to £400,000. This was approved at an Extraordinary General Meeting
of shareholders which was held on 5 July 2006.
Deferred Consideration
Under the terms of the acquisition of MicReD, deferred consideration
was due depending on the results in 2005 and 2006. Following the
performance in 2006, it is expected that the final instalment of the
deferred consideration will be paid out during 2007.
Key Performance Indicators
Measures of the Group’s performance reviewed by the management include:
- Performance against budget by turnover and contribution to profit, by
region and line of business.
- Rate of renewals of licenses.
- New sales won and lost against the competition.
An important forward looking indicator is the level of identified
business as a percentage of budget and compared to previous years.
Non-financial measures monitored include:
- Staff turnover rates
- Results of staff surveys
- Enquiries to the website
Accounting Standards
The Group has adopted International Financial Reporting Standards (IFRS)
with effect from 1 January 2007.
We have been assessing the impact of IFRS on our accounts. The
acquisition of NIKA will be restated under IFRS 3 and a value will be
attributed to the intangible assets acquired (such as customer lists
and technology). The intangible assets will be amortised and the
goodwill arising will be subject to an impairment review. We have had
the acquisition of NIKA valued for this purpose and the effect of the new
treatment has been quantified. This is subject to review by our auditors.
The remaining goodwill, which related to previous acquisitions, will no
longer be amortised but will be subject to an annual impairment review
and subject to foreign exchange movement.
The other significant change under IFRS will be the treatment of research
and development costs. Under IAS 38, if certain criteria are satisfied,
the development costs must be capitalised and amortised over the anticipated
period that benefits are expected. We have identified the projects that are
likely to be affected by this change and are currently assessing the
financial impact.
Chris Ogle
Finance Director
FLOMERICS GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2006
|
|
Continuing activities
2006 £’000
|
Acquisitions
2006 £’000
|
Group
2006
£’000
|
2005*
£’000
|
|
|
|
|
|
|
|
Turnover
|
12,864
|
1,357
|
14,221
|
11,424
|
|
Cost of sales
|
(444)
_________
|
(106)
_________
|
(550)
_________
|
(291)
_________
|
|
Gross profit
|
12,420
|
1,251
|
13,671
|
11,133
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
Research
and
development cost
|
(2,408)
|
(547)
|
(2,955)
|
(2,214)
|
|
Goodwill amortisation
|
(188)
|
(456)
|
(644)
|
(158)
|
|
Share-based payment
|
(97)
|
-
|
(97)
|
(66)
|
|
Exceptional restructuring
costs
|
(110)
|
-
|
(110)
|
-
|
|
Exceptional staff costs
|
(112)
|
-
|
(112)
|
-
|
|
Other
|
(8,350)
|
(903)
|
(9,253)
|
(7,917)
|
|
|
________
|
________
|
________
|
________
|
|
|
|
|
|
|
|
Total administrative
expenses
|
(11,265)
|
(1,906)
|
(13,171)
|
(10,355)
|
|
|
________
|
________
|
________
|
________
|
|
|
|
|
|
|
|
|
1,155
|
(655)
|
500
|
778
|
|
Other operating income
|
61
|
-
|
61
|
66
|
|
|
________
|
________
|
________
|
________
|
|
|
|
|
|
|
|
Operating profit
|
1,216
|
(655)
|
561
|
844
|
|
|
|
|
|
|
|
Other interest receivable
and similar income
Interest payable and
similar charges
|
|
|
101
(164)
|
92
(36)
|
|
|
|
|
________
|
________
|
|
Profit on ordinary
activities before taxation (Note 3)
|
|
|
498
|
900
|
|
Tax on profit on ordinary
activities (Note 5)
|
|
|
(160)
_________
|
(37)
_________
|
|
|
|
|
|
|
|
Profit for the financial year
|
|
|
338
|
863
|
|
|
|
|
________
|
________
|
|
Earnings per share (Note 6)
|
|
|
|
|
|
Diluted earnings per share
(Note 6)
|
|
|
1.47p
|
5.59p
|
* As restated (see Note 7)
FLOMERICS GROUP PLC
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2006
|
|
2006
|
2006
|
2005*
|
2005*
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
|
Fixed assets
|
|
|
|
|
|
Intangible assets
Tangible assets
|
|
10,041
1,709
_______
|
|
1,353
1,726
_______
|
|
|
|
11,750
|
|
3,079
|
|
Current assets
|
|
|
|
|
|
Stock
|
33
|
|
59
|
|
|
Debtors
|
5,467
|
|
3,953
|
|
|
Cash at bank and in hand
|
2,339
_______
|
|
4,081
_______
|
|
|
|
7,839
|
|
8,093
|
|
|
|
|
|
|
|
|
Creditors:
amounts falling due within one year
|
(5,205)
_______
|
|
(4,386)
_______
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets
|
|
2,634
_______
|
|
3,707
_______
|
|
|
|
|
|
|
|
Total assets less current liabilities
|
|
14,384
|
|
6,786
|
|
Creditors: amounts falling due after more than one
year
|
|
(305)
|
|
(377)
|
|
|
|
|
|
|
|
|
|
________
|
|
________
|
|
Net assets (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves
|
|
|
|
|
|
Called up share capital
|
|
213
|
|
148
|
|
Shares to be issued
|
|
1,112
|
|
33
|
|
Share premium account
|
|
1,735
|
|
1,602
|
|
Merger reserve
|
|
7,185
|
|
892
|
|
Profit and loss account
|
|
|
|
|
|
|
|
________
|
|
________
|
|
Shareholders’ funds
|
|
|
|
|
* As restated (see Note 7)
FLOMERICS GROUP PLC
SUMMARY CONSOLIDATED CASH FLOW STATEMENTAdministrative expenses
FOR THE YEAR ENDED 31 DECEMBER 2006
|
|
2006
|
|
2005*
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
Operating profit
|
561
|
|
844
|
|
Depreciation and
amortisation charges
|
1,028
|
|
492
|
|
Share-based payment
|
97
|
|
66
|
|
Loss / (gain) on disposal of fixed assets
|
2
|
|
(1)
|
|
Exchange differences
|
(123)
|
|
113
|
|
Decrease / (increase) in
stocks
|
30
|
|
(6)
|
|
(Increase) / decrease in
debtors
|
(1,081)
|
|
53
|
|
Increase in creditors
|
171
|
|
283
|
|
Net cash inflow from operating activities
|
685
|
|
1,844
|
|
|
|
|
|
|
Net cash inflow / (outflow) from returns on
investment and servicing of
finance
|
(63)
|
|
56
|
|
|
|
|
|
|
Tax paid
|
(176)
|
|
(126)
|
|
|
|
|
|
|
Net cash outflow from capital expenditure
|
(507)
|
|
(376)
|
|
|
|
|
|
|
|
(1,418)
|
|
(405)
|
|
|
|
|
|
|
Equity dividend paid
|
(195)
|
|
(161)
|
|
|
________
|
|
________
|
|
Net cash inflow before financing
|
(1,674)
|
|
832
|
|
|
|
|
|
|
Net cash outflow from financing
|
(68)
|
|
(65)
|
|
|
________
|
|
________
|
|
(Decrease) / Increase in cash in the year
|
|
|
|
|
|
________
|
|
________
|
|
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
FUNDS
|
|
|
|
|
(Decrease) / Increase in cash in period
|
(1,742)
|
|
767
|
|
Cash outflow from decrease
in debt and lease financing
|
68
|
|
65
|
|
|
________
|
|
________
|
|
Movement in net funds i | |