Gloucestershire, UK, May 14, 2004 (PRIMEZONE) -- VI GROUP plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2003
VI Group plc ("VI" or "the Company"), one of the leading software providers to the mould and die industry, today announced another year of turnover growth although, as outlined in last month's announcement, performance has been significantly impacted by the costs associated with the Company's American Stock Exchange listing. The underlying business continues to be strong and the 2004 first quarter results show a substantial rise in profits compared to the same period in 2003.
SUMMARY
- Turnover up 18% to GBP8.9m (2002: GBP7.5m)
- EBITDA of GBP375,000 before exceptional items and GBP244,000
after (2002: GBP520,000)
- Pre tax loss of GBP461,000 before exceptional items and
GBP1,250,000 after (2002: Profit of GBP70,000)
- Difficult European market conditions restricted growth in Italy
and Germany.
- Profitable start up for the new Japanese subsidiary in its first
year of operations
- First quarter 2004 profits significantly ahead of 2003
Don Babbs, Chief Executive of VI, commented:
"Of the world's major industrial markets, only China managed significant growth during 2003 yet VI's past investments and efforts helped gain significant market share by growing at more than twice the rate of any of our direct competitors.
Having taken the painful step to withdraw our listing from AMEX because of the spiralling increase in the cost of maintaining it and in minimising our 2004 expenses, we are working to ensure that the current year will produce growth in both revenues and profitability. We have seen encouraging signs in the early months in this respect. "
- Ends -
Attached : Chairman's Statement
Operating and Financial Review
Consolidated Profit & Loss Account
Consolidated Balance Sheet
Consolidated Cash Flow Statement
CHAIRMAN'S STATEMENT
VI Group's financial results for 2003 present a significant rise in turnover and a similar EBITDA return compared to 2002, but an extremely disappointing result after the costs of our de-listing from AMEX.
As reported in last month's announcement, the costs of our AMEX listing increased rapidly. Given the failure to consummate any US investments last year, it became clear that the costs of the listing outweighed the benefits that were available from North American acquisitions and we therefore decided to de-list. This was a painful but necessary decision to take. The associated financing costs, along with the first full year of amortisation of goodwill for 2002 acquisitions, resulted in a significant loss in 2003. However, the de-listing and consequent removal of the on-going costs of maintaining the US listing will improve profitability in 2004 and enable management to focus on profitable business in our major markets. Our strategy will be to provide a broader product offering for new and existing customers in order to maximise profits in each of the markets where VI is now based.
Although the lack of profitability was very disappointing, business volumes did grow significantly in 2003. This was in a year dominated by the uncertainties of world events, recessions in Europe and engineering markets in Japan and North America that showed signs of improvement only late in the year. Indeed, our growth in turnover recently prompted independent CAM analysts Cimdata to describe VI as "the most rapidly growing vendor over the last three year period". Turnover has doubled in the last three years and the group has significantly increased its influence with the introduction of offices in Detroit, Toronto, Lyon, Rome and Tokyo over the same period.
Given the importance of controlling the expansion costs, we cut more than GBP300,000 of annualised costs in the early part of 2003. This has helped to maintain base costs at the level of 2002, other than those relating to new ventures and the US listing which are now removed. Profit in EBITDA terms fell largely due to currency impact and the ending of some government backed incentives in Italy and Germany, and a later than anticipated recovery by the US mould and die sector.
After 10 years of operating in Japan with a single exclusive distributor, we opened our own offices there in April 2003 in order to grow our business in the world's second largest market for mould and die software. This new venture has been very successful in gaining new business while maintaining our existing relationships in Japan.
Our staff have been particularly resourceful in accomplishing "more with less" and lending a very helping hand to integrate both new offices and acquired staff smoothly into the corporate structure.
I am happy to report that, against the difficult backdrop of 2003, the current year has started well, with the first quarter of 2004 producing a turnover increase of 27% and EBITDA of GBP242,000 compared to an EBITDA loss of GBP104,000 in the equivalent period in 2003. For the rest of the year, much will depend on the release of our first five-axis CAM solutions and the durability of the rise in the industrial markets.
Stephen Palframan Chairman 14th May 2004
OPERATING AND FINANCIAL REVIEW
VI Group produced strong revenue growth on the back of its previous investments in offices and technologies. The increase of GBP1.3m represented a growth of nearly 18% in a year that was marked by the uncertainties of global supply chains and a radical shift in manufacturing towards the Far East. The strength of the Euro and the weakness of the US dollar worked in opposite directions for the Company results providing a little changed 15% revenue growth when calculated in constant currency terms.
The Company revenues grew particularly strongly in Japan (65%), France (80%) and Canada (87%) where VI had made initiatives in late 2002 and early 2003. The existing operations in the UK (33%), and our small and emerging markets divisions (38%) also grew strongly. Sales rose in our major central European markets of Germany and Italy but the stronger Euro and the end of some government backed incentives in those countries reduced growth to single figures only. Our offices in North America continued to sell successfully to some of the major automotive suppliers in the Detroit-Toronto corridor despite a generally depressed market for the majority of 2003.
Software sales accounted for 70% of turnover last year although software maintenance, services and training grew to 27%, representing a significant rise in service content. An important part of our work is the updating and maintenance of our existing users and this is reflected in the fact that the Company now has more than 5,000 seats of software under annual maintenance contract. The direct sales channel now accounts for 53% of sales where products and services are provided directly to end users by our own sales staff and 47% through independent resellers and competence centres. Both channels grew last year as the result of the new direct sales offices and new successes within the OEM channel that was selling our software in combination with machine tools or as part of third party software.
Gross margin for 2003 was GBP7.7m compared to GBP6.5m in 2002, showing a constant 87% of revenues. This margin figure has changed very little over the last three years and is a tribute to the development team and its ability to provide localised solutions without the often corresponding need to acquire locally.
New Operations
The Company opened a new wholly owned subsidiary in Japan at the beginning of April 2003 to serve the existing dealer arrangements forged by the previous exclusive arrangement with SII. Their mandate was to support and expand this network which they have successfully done, repaying the start up capital within six months and contributing profitably to the group while growing local revenues.
In January 2004, the Company acquired the Studio4 company that had previously been one of its more important Italian dealers. The company has more than 200 customers in the very important mould and die area around Brescia in Northern Italy. This small acquisition was made for only GBP144,000 but is projected to generate significantly higher amounts of revenues and profit contributions in future.
Operating Expenses
Total selling costs rose 22% to GBP4.3m in 2003 and were wholly attributable to the expansion of sales offices and 2002 acquisition costs being applied for a full year, but underlying sales costs actually fell as a result of UK cost savings and a reduction in UK personnel during 2003. Total administrative expenses were 16% higher at GBP2.0m for similar reasons, but underlying costs saw a comparable reduction.
Product Development and Other Operating Income
Release 11 of VISI-Series was distributed at the end of 2003 and added the ability to drive CNC based machine tools using wire erosion technology that is employed particularly in die making. The modelling portion of the product was updated with new analysis tools important in the design arena and a number of machining strategies such as core roughing used in the manufacture of moulds for the automotive industry. The progressive die design system was given new editing features based on a graphic tree providing a modifiable history of how the tool was constructed. The release came too late in the year to influence 2003 sales but has boosted the first quarter of 2004 results. Release 12 of the product will be made available during the summer of 2004 and the addition of full five axis machining capabilities is anticipated to be a major provider of new business in 2004 and 2005.
Product development costs increased from GBP1.3m in 2002 to GBP1.5m in 2003 as a result of the acquisition of the Machining Strategist development team. The Machining Strategist product is now sold as a stand alone shop floor CAM system and as a fully integrated part of the VISI-Series product.
The Company completed its Eureka collaborative European research and development project for mould making software and recognised 2003 revenues of GBP124,000 in proportion to the expenses. The actual cash grant for the project finally started to arrive in the first quarter of 2004. The Company also received approval for a UK based government award for a research project to be directed at assisting the production of the more artistic forms of mould making.
Exceptional Items
The Company listed its American Depositary Receipts ("ADR's") on the American Stock Exchange in October 2002 with a view to providing a currency for acquisition possibilities in North America. The early cost of this additional listing was about GBP50,000 per annum. The Company also sought to raise US funds for expanding these acquisitions and concluded an agreement for the debenture and further financing with Hemisphere Capital.
During 2003 it became clear that the costs and dilution associated with this new financing were not on terms acceptable to the current shareholder base and the potential further acquisitions were terminated. The costs of listing on the American Stock Exchange also increased dramatically in 2003 as a result of the introduction of the newly introduced Sarbanes-Oxley rules. The Company therefore decided to de-list the ADR's and write off the financing and acquisition costs totalling GBP789,000. Most of these costs were incurred in 2001 and 2002 and consequently the write-off will have no forward effect on the Company's profits or cash balances. The ADR's will continue to trade in the USA on the 'over-the-counter 'Pink Sheets'' market under the symbol GVIP where, at a greatly reduced cost to the Company, North American based shareholders can continue to trade.
Taxation and Earnings per Share
Before the above exceptional items the Company made earnings before interest, tax, depreciation and amortisation (EBITDA) of GBP375,000 compared to GBP520,000 of the preceding year. The pre-tax loss of GBP1.25m (2002: profit of GBP70,000) is a result of the application of the exceptional items and a full year of amortisation of goodwill arising from the Machining Strategist acquisition of 2002. The Company made a loss of GBP1.46m after applying a tax charge of GBP210,000. Most of this tax charge originates in Italy. It includes taxes not relating directly to current profitability and so distorts any calculation of a tax rate as measured against pre-tax profits.
This translates into basic and fully diluted losses per share of 3.92 p (2002: loss per share of 0.74p).
Cash flow and net funds
Cash outflow from operations was GBP0.05m compared to an outflow of GBP0.2m in 2002 as a result of the cost savings made during 2003. Cash balances at the year end were GBP0.5m (2002: GBP1.2m), with GBP0.7m of short-term borrowings (2002: GBP0.5m), giving a net cash figure of GBP(0.2)m (2002: GBP0.7m). The decrease in net funds is a result of the expansion investments made in 2003.
First Quarter Results 2004
The delay in the 2003 results to allow the de-listing to occur has meant that the Company can simultaneously comment on the un-audited results in the first quarter of 2004.
The turnover in the first quarter was GBP2.6m, an increase of 27% over the same period in 2002. Gross margin increased by 30% to GBP2.3m giving an overall gross margin of 89% of revenue, a 2% improvement over the 2003 figure. Operating costs rose by 11% to GBP2.1m for the first quarter as a result of one quarter of the new Japan office costs and the Studio4 acquisition.
EBITDA for the first quarter grew to GBP0.2m from a loss of GBP0.1m for the same period in 2003. Similarly the Group showed a first quarter pre-tax profit of GBP33,000 compared to a first quarter pre-tax loss last year of GBP272,000.
The Group has made substantial effort in reducing its outstanding debtors and, although there is still some way to go, is showing the first signs of reward, with average debtor days falling during the past 12 months from a peak of 195 to a current level of 143. Cash holdings at the end of March stood at GBP0.9m compared to GBP0.5m at the end of December.
In conclusion, 2003 was the year in which the company settled its US accounts in order to optimise its resources for 2004 and beyond.
Don Babbs Chief Executive 14th May 2004
Consolidated Profit and Loss Account
Year ended 31 December
2003 2002 (as restated*)
GBP'000 GBP'000
Ordinary Exceptional Total Ordinary Exceptional Total
Turnover 8,823 8,823 7,542 7,542
Cost of sales (1,145) (1,145) (1,004) (1,004)
Gross profit 7,678 7,678 6,538 6,538
Selling (4,296) (4,296) (3,508) (3,508)
expenses
Administrative (1,839) (131) (1,970) (1,686) - (1,686)
expenses
Product (1,450) (1,450) (1,282) (1,282)
development
Net other 282 _____ 282 458 - 458
operating
income
Earnings
before
interest, tax, 375 (131) 244 520 - 520
depreciation
and
amortisation
('EBITDA')
Depreciation (233) (233) (195) - (195)
Amortisation
of goodwill (500) ____ (500) (278) - (278)
and other
intangible
assets
Operating (358) (131) (489) 47 - 47
(loss)/profit
Interest
receivable and 24 24 63 - 63
similar income
Interest
payable and (127) (658) (785) (40) - (40)
similar
charges
(Loss)/Profit
on ordinary (461) (789) (1,250) 70 70
activities
before
taxation
Taxation on (210)
profit on (210) (301) - (301)
ordinary
activities
Loss on
ordinary (671) (789) (1,460) (231) - (231)
activities
after taxation
Basic and
diluted (1.80)p (3.92)p (0.74) (0.74)
(loss)/earnings
per share
* The comparative figures for cost of sales and selling expenses have been restated. Previously an amount of employee costs was reanalysed as cost of sales. There is no net effect on operating profit.
Consolidated Balance Sheet
31 December
2003 2002
GBP'000 GBP'000
Fixed assets:
Intangible fixed assets 1,781 1,963
Tangible fixed assets 564 636
2,345 2,599
Current assets:
Stock 63 20
Debtors 6,150 5,675
Cash at bank and in hand 501 1,185
6,714 6,880
Creditors; amounts falling due within one (3,910) (2,924)
year
Net current assets 2,804 3,956
Total assets less current liabilities 5,149 6,555
Creditors; amounts falling due after more (127) (146)
than one year
Provisions for liabilities and charges (319) (242)
4,703 6,167
Capital and reserves:
Called up share capital 186 186
Share premium account 5,860 5,860
Other reserves 10 10
Profit and loss account (1,353) 111
Equity shareholders' funds 4,703 6,167
Consolidated Cash Flow Statement
Year ended 31 December
2003 2002
GBP'000 GBP'000
Cash outflow from operating (47) (249)
activities
Returns on investments and
servicing of finance:
Interest received 36 51
Interest and other financing (297) (35)
costs paid
Net cash (outflow)/inflow from (261)
returns on 16
investments and servicing of
finance
Taxation:
Taxes paid (151) (191)
Capital expenditure and
financial investment:
Purchase of tangible fixed (196) (469)
assets
Purchase of intangible fixed (45) (1,669)
assets
Sale of tangible fixed assets 60 50
Net cash outflow from capital (181)
expenditure (2,088)
and financial investment
Acquisitions and disposals:
Payments in respect of (19) -
acquisitions
Net bank loans and overdrafts
acquired with subsidiary (170) -
Net cash outflow from (189) -
acquisitions and disposals
Cash flows from financing
activities:
Mortgage loans repaid (21) (41)
Repayment of finance leases (103) (31)
Issue of share capital - 3,221
Net cash flow from financing (124) 3,149
activities
Net increase/(decrease) in cash (953) 637
Cash at beginning of year 714 82
Exchange movements (4) (5)
Cash at the end of the year (243) 714
Cash
Cash at bank and in hand 501 1,185
Bank loans and overdrafts (744) (471)
(243) 714
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