REG - Touchstar PLC - Interim results
07/09/2023 07:00
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RNS Number : 6255L Touchstar PLC 07 September 2023
This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.
7 September 2023
Touchstar plc
Interim results for the
Six months ended 30 June 2023
Positive trends continue, confidence in 2023 outcome with dividend introduced
and share buyback commenced
The Board of Touchstar plc ((AIM:TST) "Touchstar", the "Company" or the
"Group"), suppliers of mobile data computing solutions and managed services to
a variety of industrial sectors, is pleased to announce its interim results
for the six months ended 30 June 2023 ("H1 23" and "Period").
Key Financials
H1 23 H1 22 % increase
Revenue £3,726,000 £3,102,000 up 20.1%
Margin 55.4% 59.8% Down 440bps
EBITDA £657,000 £560,000 up 17.3%
Pre-tax profits £307,000 £104,000 up 195.2%
Profit after tax £271,000 £164,000 up 65.2%
Basic earnings per share ("EPS") 3.20p 1.93p Up 65.8%
Cash net of overdraft and CIBLs * £2,761,000 £1,602,000 up 72.3%
Order book at end H1 £1,313,000 £1,061,000 up 23.8%
Recurring revenue £1,435,000 £1,311,000 up 9.5%
Proposed interim dividend 1.0p a share nil +1.0p
* CIBLs Coronavirus Business Interruption Loan fully repaid in July 2022
H1 23 financial highlights
· Total revenue up 20% to £3,726,000 (H1 22: £3,102,000)
· Recurring revenue up 9.5% to £1,435,000 (H1 22: £1,311,000)
· Margins declined 440 basis points in H1:23 to 55.4% (H1 22:
59.8%) predominately due to product mix and investment variation
· Higher revenues drove continued improvement in profitability
o Profits before tax up 195.2% to £307,000 (H1 22: £104,000)
o After tax profit growth of 65.2% to £271,000 (H1 22: £164,000)
o EPS rose by 65.8% to 3.20p (H1 22: 1.93p)
o EBITDA increase of 17.3% to £657,000 (H1 22: £560,000)
o Net cash of £2,761,000 at 30 June 2023 (H1 22: £1,602,000)
o Cash per share of 32.6p (H1 22: 18.9p)
· New order intake remains solid with the order book standing at
£1,313,000 (H1 22: £1,061,000)
· Board's confidence in the future highlighted by the introduction
of an interim dividend of 1p per share
Outlook and strategic progress
o Business continued to invest in improving products and ensuring
excellent service to our customers
o The buoyant order book and trading momentum underpins the prospects for
2023
o Solid H1 performance has continued, setting up another year of improved
financial performance
o The Boards expectations remain unchanged for the full year outcome
o Further growth in total revenue
o Recurring revenue growth continues
o Margins to normalise in H2 23
o Strong cash generation for the year as a whole
o Begun investment in enhancing the long-term organic growth potential of
the business creating a platform for expansion and further sustainable growth
o Sales and marketing commenced in several overseas territories and the
initial response from these markets has been encouraging
o Local relationships and distribution partnerships identified, and
discussion commenced.
o Management has identified opportunity to enhance products and enter new
markets by potential bolt-on acquisitions again these are at an early stage of
development
o Capital reduction process was approved by the courts on 19 April 2023, the
Board's current intention to return excess cash by way of the dividends and
through share buyback
o Post the Period-end, the Company purchased 225,000 shares which are held
in treasury at a cost of £203,836. The budget plans for a buyback of
£300,000 of shares per year, this should be accretive to EPS
o Company confirmed the introduced of a proposed interim dividend of 1p a
share
Commenting today, Ian Martin, Chairman of Touchstar, said: "Touchstar has
traded well in 2023 to date. Revenue growth has translated into another period
of improved financial performance. It is perhaps testament to how far we have
come that the business has achieved revenue growth of 20% and profits and
earnings increases of over 65%.
The order book remains strong, sales prospects encouraging, providing
confidence that 2023 will be another constructive year and puts in place the
foundations for that trend to continue through into subsequent years."
For further information, please contact:
Touchstar plc www.touchstarplc.com (http://www.touchstarplc.com)
Ian Martin 0161 874 5050
Mark Hardy 0161 874 5050
WH Ireland - Nominated Adviser & Broker www.whirelandcb.com (http://www.whirelandplc.com)
Corporate Finance - Mike Coe/Sarah Mather 020 7220 1666
Information on Touchstar plc can be seen at: www.touchstarplc.com
(http://www.belgravium-technologies.com)
CHAIRMAN'S INTERIM STATEMENT 2023
Overview
Touchstar continued to trade well in H1 2023. Revenue growth has translated
into another period of improved financial performance.
As we continue our evolution the standards and benchmarks we set ourselves
have been raised. Although by many metrics the performance in H1 2023 was
positive I would characterise it as solid.
It is perhaps testament to how far we have come that the business has achieved
revenue growth of 20% and profits and earnings increases of over 65% on the
same period of 2022.
The order book remains strong, sales prospects encouraging, providing
confidence that 2023 as a whole will be another constructive year, firming the
foundations for that trend to continue through into subsequent years.
Business Review
The activities within the areas of our business on the whole remain largely
buoyant. Whilst the general business landscape is a little uncertain,
Touchstar continues to secure new customers as well as building further sales
through existing customer expansion and upgrades. We have seen some
positive signs in successfully cross selling recent product additions into
existing customers' businesses. In addition to this the prospects of both
new customers and existing customer business remains healthy, and margins
remain consistent with our forecasts.
We have been active in recruitment of additional technical staff to improve
delivery timescales and maximise revenue opportunities. Although impacting
the gross margin, this is having a positive effect on the business and
provides greater security for product development and support going forward.
We are making good progress in spreading the Touchstar word to new regions and
have a number of export opportunities lined up for 2024. Establishing oneself
in a new region does take time, however we are encouraged with the positive
reception we are experiencing.
Financial results
H1 2023 H1 2022 % Change
Revenue £3,726,000 £3,102,000 +20.1%
Gross margin 55.4% 59.8% -440 basis points
Pre-tax profit £307,000 £104,000 +195.2%
Post tax profit £271,000 £164,000 +65.2%
Earnings per share (EPS) 3.20p 1.93p +65.8%
Revenue grew 20% in H1 23 to £3,726,000 as we convert the order book into
actual revenue and cash.
Gross margins were impacted in the period by sales mix and the acceleration of
investment in growth. These factors are detailed below and caused a temporary
decline of 440 basis points in gross margins to 55.4%.
The growth in revenue resulted in improved operating returns with pre-tax
profits up by 195.2% to £307,000.
After a long period of receiving the benefit of tax credits we have become a
tax paying entity, with a tax charge of £36,000 (H1 22: tax credit £60,000).
Even allowing for this, both post tax profits and basic earnings per share
rose by over 65% to £271,000 and 3.20p respectively.
H1 2023 H1 2022 % Change
Recurring revenue £1,435,000 £1,311,000 +9.5%
Recurring revenue grew a respectable 9.5% to £1,435,000 - we expect this
trend to continue in H2 as we complete projects originally timetabled for H1
23. This increases our quality of earnings, makes for a more predictable
outcome, and underpins future performance.
H1 2023 H1 2022 % Change
Gross margin 55.4% 59.8% -440 Basis Points
Gross margins fell 440 basis points to 55.4% as mentioned previously. This was
due to three main factors.
The H1 23 general sales mix was more weighted to installation and hardware
than the prior year - purely a result of timing issues.
The second included a low margin media sale for a large customer; the supply
of Access Control cards that would normally be placed in lesser amounts across
several quarters. We expect margins to normalised by year end.
The last factor was we were more successful than budgeted in recruiting open
positions in engineering and development resource as we put in place the
infrastructure and talent to effectively manage the anticipated level of
future growth.
Combined with salary increases to existing employees this led to step change
in cost of sales that will take a period for revenue to build and eliminate
this short term drag.
Based on the implementations scheduled for H2 2023 we expect a return to the
underlying trend of improving margins.
The modest increase in administrative expenses show we remain focused on
costs, productivity improvement and profitability. The overall cost base of
the Group increased by 15% being less than the growth in revenue of 20%.
H1 2023 H1 2022 % Change
EBITDA £657,000 £560,000 +17.3%
Spend on Research & Development (R&D)* £503,500 £495,800 + 1.6%
R & D Capitalised £283,300 £280,600 +1.0%
(* inclusive of amounts capitalised)
EBITDA increased by 17.3 % driven by higher revenue and profitability.
Investment continued in the business with spend in R&D rising to £503,500
which represents 13.5% of revenue (2021: 16%). Capitalisation and research and
development spend moved in line with each other.
H1 2023 H1 2022 Change
Cash net of overdraft and CIBLs * £2,761,000 £1,602,000 +£1,159,000
Free cash generation £(714,000) £(778,000) +8.0% Improvement
Cash per share 32.6p 18.9p +13.6p per share
* CIBLs Coronavirus Business Interruption Loan fully repaid in July 2022
The balance sheet remains strong with net cash of £2,761,000 at 30 June 2023,
equivalent to 32.6 p per share.
The cash generation of the business is seasonal, with the second half of the
year historically very strong, and we expect substantial positive cash flow
overall in 2023.
The order book ended the period at £1,313,000 (30 June 2022: £1,061,000) an
increase of 23.8% over the prior year. This reflects the normalisation of
trading across our markets, and the elimination of the last effects of the
pandemic.
Dividend
The Board has proposed an interim dividend of 1.0 pence per share (2022: nil),
consistent with the first-half increase in earnings per share.
The interim dividend is expected to be paid on 8 December 2023 to those
shareholders on the register at the close of business on 10 November 2023. The
ex dividend date will be 9 November 2023.
Capital Management
With the level of cash and the cash generation of the business becoming more
predictable the Board feel it is appropriate not only to invest in the
long-term organic growth potential of the business, but to also to consider
bolt on acquisitions and develop a clear route for the enhancing of
shareholder value.
The confirmation by the Court in Scotland ("Court") on 19 April 2023 of the
reduction in the share premium account now gives the Company the ability to
consider returning value to shareholders, either by via payment of a dividend
or via share buybacks.
The Company's policy will be to pay an interim and final dividend each year.
Thereafter the intention is that dividends will be progressive, linked to
profitability and at least 2.5 times covered by adjusted earnings.
As announced the Company has (post the period close) begun a share buyback
program. A total of 225,000 shares have been purchased to date at a total cost
of £203,836. The budget is to buy back £300,000 worth of shares in 2023.
The Board
The Company has formed a Nomination Committee chaired by John Christmas (the
independent non-executive) and Mark Hardy (CEO) to find my replacement,
progress is being made to identify and recruit the right person and to ensure
a seamless transition.
Current trading and outlook
As ever uncertainties in the economic outlook remain, but nothing that changes
the Board's expectations for the full year outcome. We continue to trade in
line with our plan and make good progress against our longer-term objective to
build a bigger, high quality and predictable business.
The level of demand we are seeing, our order book and the planned activity of
our customer base underpins our confidence that the trends in place will
continue and result in another good year for the business and create momentum
into 2024.
We are positive in the short, medium, and more importantly long-term
fundamentals of our business.
I Martin
Executive Chairman
6 September 2023
Unaudited consolidated income statement for the six months ended 30 June 2023
30-Jun-23 30-Jun-22 31-Dec-22
£'000 £'000 £'000
Revenue 3,726 3,102 6,743
Cost of sales (1,662) (1,246) (2,583)
Gross profit 2,064 1,856 4,160
Distribution costs (28) (21) (46)
Administrative expenses (1,763) (1,721) (3,676)
Operating profit before share-based payment provision 310 135 490
Share-based payment provision included in administrative expenses (37) (21) (52)
Operating profit 273 114 438
Finance income 39 - -
Finance costs (5) (10) (16)
Profit before income tax 307 104 422
Income tax (charge)/credit Note 6 (36) 60 136
Profit for the period attributable to the owners of the parent 271 164 558
Profit per ordinary share (pence) attributable to owners of the parent during
the period:
Pence per share Pence per share Pence per share
Earnings per share (note 7)
Basic 3.20p 1.93p 6.58p
Diluted 3.18p n/a n/a
Unaudited consolidated statement of changes in equity for the six months ended 30 June 2023
Share capital Share premium account Share based payment reserves Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
For the six months ended 30 June 2023
Balance at 1 January 2023 424 1,119 58 1,332 2,933
Capital reduction - (1,119) - 1,119 -
Cost of capital reduction - - - (30) (30)
Profit for the period - - 37 271 308
Balance at 30 June 2023 424 - 95 2,692 3,211
For the six months ended 30 June 2022
Balance at 1 January 2022 424 1,119 6 776 2,325
Profit for the period - - 21 164 185
Balance at 30 June 2022 424 1,119 27 940 2,510
For the year ended 31 December 2022
Balance at 1 January 2022 424 1,119 6 776 2,325
Cost of capital reduction in subsidiary - - - (2) (2)
Profit for the year - - 52 558 610
Balance at 31 December 2022 424 1,119 58 1,332 2,933
Unaudited consolidated statement of financial position at 30 June 2023
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Non-current assets
Intangible assets 1,093 1,143 1,087
Property, plant, and equipment 76 113 94
Right of use asset 217 320 299
Deferred tax assets 46 81 46
1,432 1,657 1,526
Current assets
Inventories 1,063 815 967
Trade and other receivables 1,057 1,410 975
Current tax recoverable 18 226 18
Cash and cash equivalents 2,810 2,831 4,461
4,948 5,282 6,421
Total assets 6,380 6,939 7,947
Current liabilities
Trade and other payables 1,121 1,091 1,491
Contract liabilities 1,532 1,363 2,022
Borrowings 49 1,229 985
Lease liabilities 136 158 157
2,838 3,841 4,655
Non-current liabilities
Deferred tax liabilities 116 251 80
Contract liabilities 144 174 144
Lease liabilities 71 163 135
331 588 359
Total liabilities 3,169 4,429 5,014
Unaudited consolidated statement of financial position 30 June 2023 (continued)
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Capital and reserves attributable
to owners of the parent
Share capital 424 424 424
Share premium account - 1,119 1,119
Share-based payment reserve 95 27 58
Profit and loss account 2,692 940 1,332
Total equity 3,211 2,510 2,933
Total equity and liabilities 6,380 6,939 7,947
Unaudited consolidated cash flow statement for the six months ended 30 June 2023
30-Jun-23 30-Jun-22 31-Dec-22
£'000 £'000 £'000
Cash flows from operating activities
Operating profit 273 114 438
Depreciation 108 110 218
Amortisation 276 336 677
Share-based payment provision 37 21 52
Movement in:
Inventories (96) 50 (92)
Trade and other receivables (82) (339) 86
Trade and other payables (60) (638) 390
Cash (used in)/ generated from operating activities (344) (346) 1,769
Interest received 39 - -
Interest paid (5) (10) (16)
Corporation tax received - - 148
Net cash (used in)/ generated from operating activities (310 (356) 1,901
Cash flows from investing activities
Purchase of intangible assets (283) (281) (565)
Purchase of property, plant, and equipment (6) (50) (60)
Net cash used in investing activities (289) (331) (625)
Cash flows from financing activities
Cost of capital reduction (30) - (2)
Principal elements of lease payments (85) (91) (178)
Business loan repayments - (15) (135)
Net cash (used in)/ generated from financing activities (115) (106) (315)
Net (decrease)/ increase in cash and cash equivalents (714) (793) 961
Cash and cash equivalents at start of the year 3,475 2,515 2,515
Cash and cash equivalents at end of the year 2,761 1,722 3,476
Cash and cash equivalents
Cash at bank and in hand 2,810 2,831 4,461
Less: bank overdraft (included within borrowings) (49) (1,109) (985)
Net cash 2,761 1,722 3,476
Notes to the interim report and accounts for the six months ended 30 June 2023
1. General information
Touchstar plc is a public company limited by share capital incorporated and
domiciled in the United Kingdom. The Company has its listing on AIM. The
address of its registered office is 1 George Square, Glasgow, G2 1AL.
2. Status of interim report and accounts
The financial information comprises the consolidated interim balance sheet as
of 30 June 2023, 30 June 2022 and the year ended 31 December 2022 along with
related consolidated interim statements of income and cash flows for the six
months to 30 June 2023 and 30 June 2022 and year ended 31 December 2022 of
Touchstar plc (hereinafter referred to as 'financial information').
This financial information for the half year ended 30 June 2023 has neither
been audited nor reviewed and does not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. This financial information
was approved by the Board on 6 September 2023.
The figures for the year ended 31 December 2022 have been extracted from the
audited annual report and accounts that have been delivered to the Registrar
of Companies. The auditors, Haysmacintyre LLP, reported on those accounts
under section 495 of the Companies Act 2006. Their report was unqualified and
did not contain a statement under section 498 of that Act.
3. Basis of preparation
The interim report and accounts have been prepared, in accordance with IAS 34
Interim Financial Reporting, using accounting policies to be applied in the
annual report and accounts for the year endingd 31 December 2023. These are
consistent with those included in the previously published annual report and
accounts for the year ended 31 December 2022, which have been prepared in
accordance with IFRS as adopted by the European Union.
Going concern
The directors have a reasonable expectation that the Group has adequate
resources to continue operating for the foreseeable future, and for this
reason they have adopted the going concern basis of preparation in the
consolidated interim financial statements. The financial statements may be
obtained from Touchstar plc, 7 Commerce Way, Trafford Park, Manchester, M17
1HW or online at www.touchstarplc.com (http://www.touchstarplc.com) .
4. Critical accounting estimates and assumptions
The Group and Company makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
(a) Development expenditure
The Group recognises costs incurred on development projects as an intangible
asset which satisfies the requirements of IAS 38. The calculation of the costs
incurred includes the percentage of time spent by certain employees on the
development project. The decision whether to capitalise and how to determine
the period of economic benefit of a development project requires an assessment
of the commercial viability of the project and the prospect of selling the
project to new or existing customers.
(b) Impairment of intangibles
Judgement is required in determining both the useful economic life of the
asset along with any impairment, notably intangible software development
costs. Useful economic life is based on the life expectancy of software
licences and recoverable amounts are based on a calculation of expected future
cash flows, which require assumptions and estimates of future performance to
be made. Cash flows are discounted to their present value using pre-tax
discount rates based on the Directors market assessment of risks specific to
the asset.
(c) Stock provisions
Judgement is required in relation to the appropriate provision to be made for
the write down of slow moving or obsolete inventory. Such provisions are made
based on the assessment of the Group's prospective sale of inventories and
their net realisable value, which are subject to estimation uncertainty.
(d) Allowance for expected credit losses
The allowance for expected credit losses assessment requires a degree of
estimation and judgement. It is based on the lifetime expected credit loss,
grouped based on days overdue, and makes assumptions to allocate an overall
expected credit loss rate for each group. These assumptions include recent
sales experience, historical collection rates, the impact of the Coronavirus
(COVID-19) pandemic and forward-looking information that is available.
After due consideration of the assumptions detailed above, no credit loss
provision was considered necessary for the period ended 30 June 2023 (30 June
2022: nil) (year ended 31 December 2022: nil).
5 Share-based employee remuneration
The Touchstar plc EMI Share Option Plan (Plan) was approved by the
shareholders at the Annual 2021 AGM on 23 June 2021. It is a share-based
payment scheme for employee remuneration which will be settled in equity.
The Plan is part of the remuneration package for Group employees as selected
by the Group's Remuneration Committee. Options under this Plan will vest if
performance conditions are met pertaining to profit after tax and recurring
revenue growth as defined in the Plan. Participants in this Plan must be
employed until the end of the agreed vesting period unless deemed as 'good
employees' by the Group's Remuneration Committee on leaving. Upon vesting,
each option allows the holder to purchase each allocated share at the market
price determined at the grant date.
The number of options granted during the period and outstanding at 30 June
2023:
30 June 2023 30 June 2022 31 December 2022
Number Number Number
At 1 January 422,000 211,000 211,000
Granted during the period - - 211,000
At 30 June 422,000 211,000 422,000
Of which:
Vested 105,500 - -
Unvested 316,500 105,500 422,000
6 Income tax credit
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Corporation tax
Current tax - (60) -
Deferred tax charge released 36 - (136)
Total current tax charge/(credit) 36 (60) (136)
The deferred tax charge release for period ended 30 June 2023 relates to
brought forward losses surrendered against the current period tax charge. The
tax credit for period ended 30 June 2022 related to losses expected to have
been surrendered through R&D tax credit. For the year ended 31 December
2022 available tax losses were carried forward within deferred tax rather than
surrendering through R&D tax credit.
7 Earnings per share
30 June 2023 £'000 30 June 2022 £'000 31 December 2022
£'000
Profit after tax attributable to the owners of Touchstar plc
271,000 164,000 558,000
Weighted average number of shares used in calculating basic earnings per share 8,475,077 8,475,077 8,475,077
Number of considered dilutive shares 44,758 nil nil
Weighted average number of shares used in calculating dilutive earnings per
share
8,519,835 8,475,077 8,475,077
Earnings per ordinary share (pence) attributable to owners of the parent
during the period:
Earnings per share 30 June 2023 30 June 2022 31 December 2022
Basic 3.20p 1.93p 6.58p
Diluted 3.18p n/a n/a
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares in
issue during the year.
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account the after-tax effect of interest
and other financial costs associated with the dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued
for no consideration in relation to dilutive potential ordinary shares.
During the year 31 December 2022 the Group issued 211,000 (2021: 211,000)
options with an exercise price of 77.5p (2021: 85p).
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