Stadium Group Reports 26.9% Revenue Growth in 1H 2015

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Stadium Group Plc, a leading electronic technologies group, announces its unaudited interim results for the six months ended 30 June 2015.

Financial highlights

• Revenues up 26.9% to £25.1m (H1 2014: £19.8m)

                ›  Technology Products up 118.8% to £11.0m (H1 2014: £5.04m)

• Gross margins up 100 bps to 21.6% (H1 2014: 20.6%) driven by higher margin Technology Products sales
• Adjusted* profit before tax up 54.2% to £1.4m (H1 2014: £0.9m)
• Reported profit before tax of £0.7m (H1 2014: £0.8m)
• Cash of £2.8m, offset by bank loans of £8.0m, results in net bank debt of £5.2m (H1 2014: £0.8m net cash)
• Adjusted* earnings per share up 61.5% to 4.2p (H1 2014: 2.6p)
• Reported earnings per share of 2.0p (H1 2014: 2.2p)
• Interim dividend proposed of 0.9p per share, an increase of 28.6% (H1 2014: 0.7p)

* After adjusting for amortisation on acquired intangibles and non-recurring costs.

Operational highlights

• Technology Products division accounted for 44% of total revenues (H1 2014: 25%)
• Stadium United Wireless sales up 26.2% to £5.3m as part of enlarged integrated offering
• Technology Products order book up 30.1% to £15.5m over 2014 year end 
• Relocation and investment into a new state-of-the-art manufacturing facility in Asia completed
• Opening of three regional design centres: one in China and two in the UK

Post period highlights

• Acquisition of UK power solutions company Stontronics Ltd for up to a maximum of £6.5m in cash
• Successful equity raise of £6.0m to support the acquisition, including an oversubscribed open offer.

"The Group continued to perform strongly in the first half of the year and is trading in line with our expectations. The period saw us make significant progress with our strategic objective to transition Stadium from a traditional electronic manufacturing service business to an integrated technology-led organisation. We are pleased to have grown revenues whilst delivering a greatly increased proportion of higher value and higher margin Technology Products sales, which confirms the strengthening of our Technology Products offering.

"With the evolution of our three regional design centres, upgraded Asia facility, expanding market for wireless, and the acquisition of Stontronics after the period end, we are excited about the future prospects of the business. We are pleased to see progressive growth in our order book for Technology Products, which underpins our confidence in the full year outlook," said Chairman Nick Brayshaw OBE.

Chairman's statement

Unaudited interim results for the six months ended 30 June 2015

Overview

I am pleased to report that Stadium has delivered another strong set of half year results in line with management's expectations, showing continued growth in revenues and adjusted profit before tax, as well as a significant increase in the contribution of our Technology Products division, which accounted for 44% of total revenues compared to 25% for the same period last year.

We have invested significantly during the period, both in the opening of our three regional design centres (one in China and two in the UK), which are already beginning to show results, and also in the relocation and upgrade of our manufacturing capability in South China. The move to our new state-of-the-art facility was completed soon after the end of the first half and significantly enhances our technical capability and is better suited to supporting our Technology Products customers' needs both globally and in Asia. As previously announced, the new facility move has resulted in an increase in working capital, which we expect to unwind in the second half of the year.

During the period, we continued to progress our strategy of making targeted, complementary acquisitions, which will strengthen our integrated technology offering, as well as providing synergies and cross-selling opportunities across the Group. We are particularly pleased that Stadium United Wireless ('SUW'), which we acquired in July 2014, has performed very well as part of the Group, attracting a number of new customer wins through our integrated offering. SUW continues to exceed our criteria for success, established at the time of acquisition.

We identified Stontronics Ltd, a UK based manufacturer and distributor of power supply units, transformers and adaptors, as a key opportunity to extend our offering, and we were pleased to complete this acquisition in August 2015, with the initial consideration funded by the equity raise of £6m. Stontronics augments the Group's existing power products capabilities and further strengthens our overall integrated technology offering.

The second half of 2015 has started well and our Technology Products order book has increased significantly to £15.5m, up circa 30.1% since the start of the year.

Financial highlights

Revenues for the first half of the year were £25.1m, up on the prior year by 26.9% (H1 2014: £19.8m), supported by the contribution of SUW. Considerable progress was made in the first half of the year in transitioning the business towards technology-led products with the Technology Products division sales contributing £11.0m (44% of total revenues) against the £5.0m sales recorded for the division in the six months ended 30 June 2014 (25% of total revenues).

The Technology Products division grew revenues by 118.8% including the first time contribution of SUW. The integration of SUW into the Group has been very successful with new contracts secured during the first half from customers attracted by the integrated offering of the enlarged group. Excluding the contribution of SUW, the Technology Products division delivered excellent underlying organic sales growth of 12.7%.

In line with our expectations, revenues from the iEMS division declined by 4.4% during the period. This reflects lower sales volumes, continued pricing pressures and our continued management away from non-core, low margin business. The iEMS division remains a key element in our integrated sales strategy and is increasingly supporting the growth in sales of Technology Products.

As a result of a shift in sales revenue mix towards the higher margin Technology Products division, overall gross margins improved by 100 basis points to 21.6% (H1 2014: 20.6%).  Operating expenses increased by £0.8m year-on-year. On a like-for-like basis, adjusting for the acquisition of SUW, operating expenses increased by £0.4m for the first half of the year.  Just under half of this cost increase was associated with the opening of the new regional design centres and strengthening management bandwidth in Technology Products, which has directly contributed to the increase in order intake.

After adjusting for amortisation on acquired intangibles and non-recurring costs, normalised profit before tax was up 54.2% to £1.4m (2014: £0.9m), whilst the return on sales improved by 100 basis points. Reported profit before tax was £0.7m (H1 2014: £0.8m) after charging £0.6m (H1 2014: £0.1m) amortisation on acquired intangible assets; £0.1m of reorganisation costs relating to the Asia factory relocation and £0.1m of implied interest charges on the fair value of the deferred consideration for SUW.

Technology Products

Technology Products revenues increased by 118.8% to £11.0m (H1 2014: £5.0m) and contributed 62.1%, £1.1m (H1 2014: 36.4%: £0.4m) to the Group's normalised operating profits. The integration of SUW into the Group and the early successes we have had in securing new customer wins have been the main drivers for the revenue growth seen in Technology Products. The performance of the business has already exceeded our criteria for success and much of this reflects the successful execution of our integrated technology solutions offering, which is proving to be an attractive and differentiating proposal. Revenues for SUW increased by 26.2% year-on-year and we expect to see further growth in the second half.

On an organic basis, excluding SUW, the Technology Products division revenues grew by 12.7%. Within the division, power products growth resulted from the stronger Asian distribution channel, which was a key investment area in 2014. It is encouraging to see this initiative showing payback and it is expected to further increase with the integration of Stontronics into the Group. The Group continued to benefit from innovation. Power products introduced 14 new customised products in the first half of the year and increased the franchised product range by over 50 new products. The interface and displays products range has also been broadened with 12 new products introduced in the first half of the year.

Early in 2015, we opened three regional design centres, one in Zhangjiang Hi-Tech Park in Shanghai, another near Southampton and the third on the Research Park in Norwich, to support the growth in our Technology Products division. These regional design centres are a key strategic enabler to ensure we attract the appropriate talent in the organisation and support our customers in the key geographical locations that they require. We are encouraged by the response and feedback we have received from our customers in this respect, which is driving a step change in our order book.

After the period end, Stadium acquired Stontronics Ltd, a UK based manufacturer and distributor of power supply units, transformers and adaptors, for a maximum consideration of £6.5m. The acquisition completed on 19 August 2015 and was structured as an initial consideration of £5.5m on a cash-free / debt-free basis and a further £1m deferred consideration contingent on the achievement of future financial targets. The cash required for the acquisition was funded through a firm placing and open offer raising £6m of gross funds.

Stontronics, founded in 1988, is a private company based in Reading. It is a distributor and manufacturer of transformers, adaptors and power supply units, providing a power solution service to its customers. Stontronics' key strength is its ability to provide customers with high quality customised, semi-customised or standard power products either through distribution partners or from its own manufacturing site, with a bespoke design service, which is provided through its relationship with several of its Asian suppliers and supported by its own in-house design capability.

Stontronics has a direct sales team, which is focused on providing a power solution service to the industrial equipment and instrumentation market predominantly in the UK. Products are sold to over 500 customers, with coverage into Europe and North America, who comprise both end users and also distribution partners, including tier one catalogue distribution customers. The two vendors of the business will remain with the Group in senior management roles to assist with the handover and integration of Stontronics.

As at 30 September 2014, Stontronics had net assets of c. £0.5m, and generated an operating profit of £0.6m in the year ended 30 September 2014 from revenues of £4.9m. We expect the combined effect of the acquisition and the fundraising to be earnings per share neutral in the 2016 financial year. We are very excited about the future prospects of the Stontronics business in the enlarged Group.

Integrated EMS

Overall revenues in iEMS reduced in the first half of the year by 4.4%. The iEMS business continues to operate in a challenging environment with pressure on pricing and over-supply in the market. We continue to explore business development opportunities in this area as the iEMS division remains a key element within our overall sales strategy. It has also been instrumental in securing new contracts in our Technology Products division and increasingly our key iEMS customers are in discussions with us about supplying a number of other related technologies, such as power supply or wireless connectivity.

During the period, we moved our Asia facility to a new upgraded site in close proximity to our previous location on the expiry of the lease, and the relocation was successfully completed in July. This site upgrade required a £1m one-off investment, which is expected to payback in approximately three years based solely on the reduced rental costs. Perhaps more importantly the new location, with an increase in machine capability and facilities, supports the growth in our Technology Products division and ensures we remain aligned with the increasing technical requirements of our EMS customers.  As a consequence of this investment, Stadium Asia is now manufacturing much of the increased demand in the wireless business, which has arisen from new business wins achieved in the year.

The site relocation has led to a planned increase in working capital in the period as we built up strategic stocks to support our customers during the move. This is expected to unwind over the remaining months of the year.

Dividend

The Board continues to maintain a progressive dividend policy aligned to the free cash generation of the Group and the investment required to deliver sustainable growth in revenues and profits. The Board proposes an interim dividend of 0.9 pence per share, an increase of 28.6% on the 2014 interim dividend (2014: 0.7 pence). The dividend will be paid on 23 October 2015 to shareholders registered at the close of business on 25 September 2015. The ex-dividend date is 24 September 2015.  

Outlook

The Group continued to perform strongly in the first half of the year and is trading in line with our expectations. The period saw us make significant progress with our strategic objective to transition Stadium from a traditional electronic manufacturing service business to an integrated technology-led organisation. We are pleased to have grown revenues whilst delivering a greatly increased proportion of higher value and higher margin Technology Products sales, which confirms the strengthening of our Technology Products offering.

With the evolution of our three regional design centres, upgraded Asia facility, expanding market for wireless, and the acquisition of Stontronics after the period end, we are excited about the future prospects of the business. We are pleased to see progressive growth in our order book for Technology Products, which underpins our confidence in the full year outlook.

About Stadium Group plc

Stadium Group plc is a leading provider of design-led integrated electronic technologies to the global electronics market with design and manufacturing operations in the UK and Asia.

The Company consists of two divisions:

1.    Technology Products (44% of revenues H1 2015) - incorporating a portfolio of value-adding complementary products, design and integration capabilities in the areas of:

• Power - custom and standard power product solutions from 1W to 10kW
• Wireless - design, integration & manufacture of M2M (machine-to-machine) wireless solutions
• Interface and Displays - intelligent HMI (human machine interface) integrated solutions

2.    iEMS (56% of revenues H1 2015) - Integrated Electronic Manufacturing Services (iEMS) to global original equipment manufacturers.