DJ Sprue Aegis plc Half-year Report
o GBP1.6m decline in Germany where customers deferred orders into H2 2016 preferring to wait for products with a Panasonic battery; the order book for Germany is building and Q3 2016 sales are expected to be at least Euro 3.0m higher than the same quarter last year; o GBP3.7m (+26%) net increase in total UK and Pace Sensors sales; and
o GBP1.0m increase in sales to other customers within the Continental European business unit is a 200% increase over H1 2015 which follows our strategic intent to broaden the international appeal of Sprue's brands
— Operating result before share-based payments charge was an operating loss* of GBP0.9m (H1 2015: operating profit GBP9.0m) and is stated after a GBP0.2m restructuring charge
— At H1 2015 exchange rates, the H1 2016 operating loss* would have been circa GBP0.3m higher at GBP1.2m (H1 2015: operating profit* GBP9.0m)
— Gross margin pre-BRK distribution fee declined by 3.5% to 25.5% (H1 2015: 29.0%) principally due to:
o effect of higher proportion of UK Retail sales which were 29% of total sales (H1 2015: 8%) and a reduced proportion of Continental European sales which were 31% of total sales (H1 2015: 75%); and
o GBP0.5m increase in stock provisions to cover rework costs and potentially over stocked lines
— H1 2016 FireAngel warranty costs relating to the high impedance battery issue identified earlier in the year are broadly tracking management's expectations
— Strong balance sheet with net cash as at 30 June 2016 of GBP14.7m (30 June 2015: GBP28.9m) and no debt (30 June 2016: GBPnil)
— Cash declined by GBP7.7m since 31 December 2015 principally due to the circa GBP7.0m payment in H1 2016 for the buffer stock ordered to mitigate against potential supply chain disruption due to the relocation of the factory in China in Q4 2015; this stock remains largely unsold as at 30 June 2016 although the Board is confident it will be sold over the next 12 months
— The Board has declared a maintained interim dividend of 2.5 pence per share and remains confident of a solid recovery and return to profitability in H2 2016
— Approximate gross profit on sales of BRK products was GBP1.3m (H1 2015: GBP8.3m which included a significant contribution from sales into France) and was marginally lower than the GBP1.5m BRK distribution fee (H1 2015: GBP1.8m)
— After the H1 2016 restructuring charge of GBP0.2m and additional GBP0.1m of net costs associated with the acquisition of source code** and development rights to software developed by Intamac Systems Limited (the “Intamac Software Acquisition”), announced separately today, the Board continues to expect Sprue's sales and operating profit before share-based payments charge for the year ending 31 December 2016 to be in line with market expectations at approximately GBP58.0m and GBP1.9m respectively.
*Operating (loss) / profit is stated pre-share-based payments charge of GBP0.3m (H1 2015: GBP0.2m) but after a GBP0.2m restructuring charge (H1 2015: GBPnil)
**acquired under a perpetual royalty-free licence