RNS Number:8204M
SMF Technologies PLC
26 June 2003
CHAIRMAN'S STATEMENT
Introduction
This is my third Annual Statement as Chairman of SMF Technologies plc. ("SMF" or
the "Company") having been appointed as Chairman on 12 January 2001.
Despite the Management Team implementing a more balanced business model which
has resulted in real progress being achieved the Company failed to raise capital
either for its technology development programme or an acquisition opportunity
identified by Management during 2002/03.
As a result of the proposed acquisition not going ahead, the major shareholder,
who has supported the company since August 2001 through the provision of a loan
note from a company controlled by him, indicated to the Board that he would not
continue to underwrite the Company's operations into the future. Given the small
size of the Company, the fact that the business of the Company is just
break-even and that the returns from the investment in the new technologies were
becoming more and more uncertain, the Independent Directors authorised the
management of the company to consider making a management buy-out offer.
Contract with Gardon
Gardon is a newly formed company that has not previously traded and is partially
controlled by John McDonnell, Managing Director of the Company for the last two
and a half years. The Company and Gardon have entered into a purchase and sale
agreement pursuant to which the Company has agreed, subject to shareholder
approval, to transfer all the issued share capital of Suparule Holdings Limited,
SupaRule Systems Limited, SupaRules Limited and SupaRule SA (Pty) Limited to
Gardon. Gardon has agreed to have novated to it the Company's liability of
Euro186,000 due to Limerick Tile & Glass Company Limited, a company controlled by
Martin O'Donoghue and to pay Euro50,000 to the Company in consideration for the
transfer. Mr. McDonnell has also confirmed that he is having discussions with
Enterprise Ireland that should the buyout be approved, Enterprise Ireland would
agree to modifications to the terms of its loan of Euro190,000.
The agreement contains limited warranties with regard to the Company's ownership
of the shares in the subsidiary companies being sold and the ability of the
company to sell those shares. The maximum liability of the Company under these
warranties is limited to the consideration paid by Gardon. John McDonnell will
be resigning as a Director upon the passing of the Resolutions although he will
continue to assist the Independent Directors as necessary in any administrative
matters concerning the Company.
The view of the Independent Board is that the offer is fair and reasonable and
is being recommended to shareholders for approval at the EGM of July 8th, 2003.
Financial Results & Review of 2002/03 Group Trading Results
For the reasons detailed elsewhere in this statement the directors agreed to
sell the operating subsidiaries to Gardon Limited. In order to recognise this
transaction and on the basis that the financial statements have been drawn up on
the basis that the shareholders will approve the sale an exceptional provision
for impairment losses in group assets of Euro250,000 has been made.
Group turnover was down by 9% for the full year at Euro2,065,794 (2002 :
Euro2,269,140). The Group loss for the year was Euro260,119 compared with a loss of
Euro273,891 for 2002 a reduction of 5%.
The Group loss for the second half of the year (H2) which includes the
exceptional provision for impairment losses as outlined above was Euro291,119
compared with a profit in the first half (H1) of Euro31,000 (the corresponding
figures for 2002 was a profit in H2 of Euro4,514 and a loss in H1 of Euro278,405).
The Board continues its policy of charging all Research and Development (R&D)
costs to the Profit and Loss Account. The R&D spend of Euro212,569 was down on last
year's spend of Euro259,577 mainly due to a reduction in patent renewal costs.
Turnover in South Africa (SA) declined from Rand10.9million to Rand8.9million,
an 18% decrease in the year. However gross margin increased from 35% to 41%, and
overhead expenditure was reduced by 29%. The consolidated figures of the SA
operation were further assisted as the Rand strengthened against the Euro during
2002/03, which offset the effect of the reduced turnover. The operation while
being profitable requires investment to strengthen its sales team, improve its
marketing, acquire distribution rights for new product and invest in the
research and development work to produce own manufactured product for sale in
SA.
Turnover in Ireland grew to Euro1,142,288 from Euro1,016,218 (an increase of 12%). Of
the total turnover of Euro1.142million, Euro142,000 (Euro67,000 in 2002) relates to
product development licence and consultancy income. However with the current
difficult market conditions, income from this source is not expected to reach
this level in the current year.
The Irish trading business continues to be heavily dependent on cable height
meter (CHM) sales with the balance being made up of Railway Overhead Measurement
(ROM) ultrasonic product and by third party product sales in Ireland and
over-seas.
The Group's gross profit margin of 50.4% has increased from 43.1% the previous
year. In the current year margins have been improved due to price increases
being applied and a higher level of CHM and ROM sales. However since January
2003 margins are coming under pressure due to greater competition in the
marketplace and the strength of the 'Euro' against the US$.
Net cash outflow from operating activities amounted to Euro26,592 which compares to
a reported loss of Euro253,176. The difference arises primarily from the
exceptional provision for impairment losses of Euro250,000.
Technology Development
SMF's power electronics technology (SMFTM Technology) measures electrical
current in high and low voltage environments.. The technology has applications,
both on the micro level, in mass-produced current measuring devices and on the
macro level to electrical utilities. The technologies can be sub-divided into
two distinct categories namely :
* A non-invasive planar magnetic coil sensor (PMCS) for measuring current in
a single or multi-core cable, and
* A non-invasive measurement system for overhead current in medium and
high-voltage environments - (Remote Line Monitor - RLM technology)
Current Trading and Outlook
In difficult trading conditions globally, the operational performance of the
Group over the last twelve months has been satisfactory. While turnover has
decreased, margins have improved and costs have decreased. However the costs of
remaining quoted and the inability to see returns from the investment in
research and development led the Board to make the difficult decision that the
company had no future as a quoted company. This was reinforced with the
withdrawing of the loan note facility from the major shareholder (a facility of
Euro640,000 existed of which the company has utilised Euro172,000 to date) and the
lack of ability to raise much needed investment finance. The Board are
recommending a management buy-out.
Extraordinary General Meeting (EGM)
I would draw your attention to the holding of an EGM on July 8th, 2003 for the
purposes of facilitating the sale of the trading subsidiaries as outlined in the
circular to shareholders of June 9th, 2003.
Conclusion
During the last twelve months, the Board and Management were focused on the
parallel processes of commercialising the SMFTM technology, of growing sales
from the current product range and on identifying a suitable acquisition to
exponentially grow the Group and achieve profitability. These strategies
required investment and unfortunately the level of investment required was not
forthcoming from the investment community. This compounded by the withdrawal of
support from the company's major shareholder, led the Board to conclude that
continuing to trade as a quoted company was not a feasible option. Under these
circumstances, the Board believes that it is in the best interest of
shareholders to dispose of the trading divisions of the Company and put the
Company on the market as a shell. The EGM on July 8th, will decide this matter.
I would like to thank our shareholders and staff for their continued support
over the past year.
Bill Henebry
Chairman of the Board
26 June 2003.
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2003
2003 2002
Euro Euro Euro Euro
Turnover 2,065,794 2,269,140
Cost of sales (1,024,164) (1,290,717)
______________ ___________
Gross profit 1,041,630 978,423
Distribution expenses (256,481) (315,222)
Administration expenses (778,583) (935,144)
Exceptional provision for impairment losses on group assets (250,000) -
______________ ____________
Operating loss (243,434) (271,943)
Interest payable and similar charges (15,875) (8,608)
Interest receivable 6,133 6,660
______________ ____________
Loss on ordinary activities before
taxation (253,176) (273,891)
Taxation (6,943) -
______________ ____________
Loss for the financial year (260,119) (273,891)
Balance at the beginning of year (3,756,549) (3,482,658)
______________ _____________
Balance at end of year (4,016,668) (3,756,549)
______________ ______________
Basis loss per share (3.81)c (4.05)c
______________ ______________
Detailed loss per share (3.81)c (4.05)c
______________ ______________
UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2003
2003 2002
Euro Euro Euro Euro
Fixed assets
Tangible assets 97,868 133,715
97,868 133,715
Current assets
Stocks 317,818 221,626
Debtors 308,784 355,692
Cash at bank and in hand 230,456 233,999
857,058 811,317
Creditors (amounts falling due within one year) (711,103) (341,072)
Net current assets 145,955 470,245
Total assets less current liabilities 243,823 603,960
Creditors (amounts falling due after more than one year) (199,263) (342,801)
44,560 261,159
Capital and reserves
Called up share capital 818,541 818,541
Capital conversion fund 47,569 47,569
Share premium 2,790,324 2,790,324
Other reserves 404,794 361,274
Profit and loss account (4,016,668) (3,756,549)
Equity Shareholders' funds 44,560 261,159
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT AS AT 31 MARCH 2003
2003 2002
Euro Euro Euro Euro
Net cash outflow from operating activities (26,592) (238,371)
Return on investments and servicing of finance
Bank interest received 6,133 6,660
Interest paid (3,316) (6,826)
Finance lease interest paid (1,695) (1,782)
1,122 (1,948)
Capital expenditure
Payments to acquire tangible fixed assets (16,770) (30,087)
Proceeds from sale of tangible fixed assets 1,600 366
(15,170) (29,721)
Cash outflow before financing (40,640) (270,040)
Financing
Issue of ordinary share capital - 102,666
Increase in other loans 30,000 145,762
Capital element of finance lease rental payments 7,097 1,768
37,097 250,196
Decrease in cash in the year (3,543) (19,844)
Notes to the Preliminary Announcement
1. Status of Financial Information
The financial information underlying this announcement has been subject to
external audit procedures.
The going concern principle of accounting has been adopted by the directors in
compiling this financial information on the basis that the resolutions to be put
to the Extraordinary General Meeting to be held on 8th July 2003 will be passed.
At that time, the full financial statements will be approved by the directors
who believe that, following the completion of the sale of the trading
subsidiaries and novation of the loan notes as described in the Chairman's
statement and the approval of the financial statements by the board, the
auditors, Deloitte & Touche, will sign their audit opinion which is expected to
be unqualified but with a going concern emphasis of matter. The directors' views
regarding the basis of preparation of the financial statements are noted below.
2. Basis of preparing the financial information
These preliminary results have been prepared on the going concern basis which
assumes that the completion of the sale of the trading subsidiaries and novation
of the loan notes will take place leaving the company with an excess of assets
over liabilities.
The validity of the going concern assumption is dependent upon the resolutions
to be put to the Extraordinary General Meeting to be held on 8th July 2003 being
passed.
If such resolutions are not passed the Group will be unable to continue in
operational existence and therefore adjustments would have to be made to reduce
the balance sheet value of assets to their recoverable amounts, and to provide
for further liabilities that might arise, and to reclassify tangible assets and
long term liabilities as current assets and liabilities.
3. Computation of loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary
shareholders by the weighted average number of shares in issue during the year
6,821,171 (2002: 6,767,004).
For diluted loss per share the weighted average number of shares is adjusted to
assume conversion of all dilutive potential ordinary shares.
The basic and diluted Loss per share for 2003 was Euro0.038 (2002: Euro0.041).
4. The Directors expect the annual audited financial statements will be posted
to shareholders by August 31st, 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
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