Laird PLC results for the 6 months ended 30 June 2015 (unaudited)

Good first half performance in line with expectations

·     21% increase in total Sterling revenue, reflecting underlying growth and favourable currency movements.

·     11% organic⁵ revenue growth in constant currency, driven by strong performances in smartphones and automotive telematics, tempered by lower growth in telecoms mobile infrastructure.

·     20% increase in underlying US$ operating profit, with improvement in underlying operating margin, benefitting from increased volumes in smartphones and a full period contribution from Model Solution.

·     36% increase in underlying profit before tax to £26.9m, underpinned by strong underlying performance with a favourable currency benefit of circa 10%.

·     35% increase in statutory profit before tax to £21.6m (2014: £16.0m).

·     Operating cash flow conversion of 94%.

·     Interim dividend increased by 3% to 4.40p (2014: 4.27p).

Consistent execution against our strategy

·     Eight consecutive quarters of organic revenue growth, averaging 9%.

·     Good H1 performance underpinned by strong customer engagement, innovation and the benefit of prior year investments in our manufacturing footprint.

·     Incremental revenue growth from both new and existing customers, demonstrating our successful focus on customer diversification and engagement.

·     Historical second half weighting less marked than in prior years.

·     New telematics facility in Brazil on track to open in the second half of the year.

David Lockwood, Chief Executive, commented:  "Our business performed well in the first half of the year. We continue to drive our strategy of diversifying revenue between sectors and, within those sectors, across market-leading customers. As such, we are increasingly well positioned to benefit from the growth in the 'Enterprise Internet of Things'.

"The investment we have made in our people, technology, systems and facilities is delivering operational improvements. This has helped us win new business and contributed to a strong first half. 

"As a result of this progress, our expectations for the full year remain unchanged."

notes:

Laird is a global technology company focused on providing systems, components and solutions that protect

electronics from electromagnetic interference and heat, and that enable connectivity in mission-critical

wireless applications and antennae systems. We are a global leader in the field of innovative radio

frequency ("RF") engineering.

A presentation for analysts and investors will be held today at 8.30 am at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.  A live webcast of the presentation will be hosted on www.laird-plc.com.  A replay of the webcast will also be available on our website a few hours after the live broadcast. 

Laird will host a capital markets day for analysts and investors on Thursday, 1 October 2015.

¹          Sterling figures have been translated at $1.52/£, the average exchange rate for the period (2014 equivalent: $1.67/£).

²          Underlying operating profit and underlying operating margin are stated before exceptional items, amortisation of acquired intangible assets, gain or loss on disposal of businesses and acquisition transaction costs.

³          Underlying profit before tax and underlying earnings per share are stated before exceptional items, amortisation of acquired intangible assets, deferred tax on acquired intangible assets, goodwill and US capitalised development costs, gain or loss on disposal of businesses, impact arising from the fair valuing of financial instruments and acquisition transaction costs.

⁴          Earnings per share is calculated on a weighted average number of shares of 267.2m (2014:  266.7m).

⁵          Organic revenue growth is calculated on a pro-forma basis, restating prior year comparatives as if acquisitions were owned in the equivalent period in the prior year.

Operating review

Our businesses performed well in the first half of the year, with a strong performance in smartphones and telematics, although the global slowdown in mobile telecom infrastructure affected performance in the second quarter.

Total sterling revenue increased 21% to £305.9m (2014: £252.6m) driven by organic growth, a full period contribution from Model Solution (acquired April 2014) and the translation benefit from a more favourable exchange rate for the US dollar relative to Sterling.  In US$, revenue grew 11% to $466.5m (H1 2014:  $421.3m).  On an organic basis in constant currency, revenue increased 11%. 

Strong customer engagement in the early product design stages and our ability to meet and exceed customer expectations underpinned our growth and led to incremental new business gains with smartphone and automotive customers.   We also developed new products for the wearables and notebook segments, both of which show early promise.  Our expertise in protecting electronics from heat and signal interference and ensuring seamless, mission-critical connectivity in hostile environments underpins our long term growth, as does our strategic focus on attractive niche markets in connected transport, connected health, wireless industry automation (industry 4.0) and 4G/5G mobile telecoms infrastructure investment. 

We continue to diversify across our target markets with new customer wins in the medical and food & beverage sectors.    Collaboration across our businesses also continues to increase under the One Laird banner, especially in Wireless Automation and Control Systems (WACS) where our businesses worked together to offer customers innovative, complex solutions for wireless connectivity.

Our new telematics facility in Brazil is on track to open in the second half of the year.  The new management team is already in place, and we anticipate commencing production for several customers before the end of the year.  Our Performance Materials facility in Vietnam, which opened last year, is also working well.

Underlying operating margin increased to 10.1% against 9.3% in the first half of 2014, largely benefitting from improved operating leverage on higher volumes.  As in previous years, we expect that operating profit, and the resulting effect on net margin, will again be weighted to the second half of the year.  We anticipate that net margins for the full year will remain largely unchanged from the prior year due in part to the intention to fund a fuller employee bonus programme, subject to meeting internal targets, than the relatively low level paid out in 2014. 

Divisional review

Performance materials

Performance Materials revenue in US$ grew 12% to $294.7m (2014: $262.4) with organic growth in constant currency of 12%. Underlying operating profit increased 18% to $33.7m (2014: $28.6m), and underlying operating margin was 11.4% (2014: 10.9%).

Shielding solutions for our two largest smartphone customers performed strongly over the period with revenue for smartphones up 39% to $80m.  Shielding solutions for the automotive sector continue to grow, following our strategic focus on diversifying across industry sectors and applying our expertise to under-exploited industry segments. 

Our customer base for engineered thermal solutions further expanded in medical applications.  A major contract supplying a new customer in the food and beverage industry was also won, another example of our successful customer diversification strategy. 

Overall revenue performance for the thermal product range was marginally lower, held back by lower revenues for telecoms mobile infrastructure in the second quarter.  For the six month period, revenues for this market segment are $6m lower for the division. 

Gaming consoles were lower against a strong comparable performance in the first half of 2014 when we continued to benefit from a major new product launched by a customer at the end of 2013.

Model Solution performed well, improving its share of its domestic market and expanding its international presence in rapid prototyping, showing good traction with US technology start-ups. 

Performance Materials provides critical protection for a wide range of electronic devices, at the chip, printed circuit board and systems level, allowing these devices to function and connect effectively.  The growth of thinner, more powerful electronic devices customised to new forms and applications with added features continues to drive customer demand for our global expertise in electromagnetic shielding, thermal management and rapid prototyping ability.  Our focus on winning customer mindshare has resulted in new projects across our customer base, including in automotive, notebooks and wearables, which offer promising future revenue streams. 

Wireless Systems

Wireless Systems revenue in US$ grew 8% to $171.8m (2014: $158.9m) with organic growth in constant currency of 11%.  Underlying operating profit grew 16% to $18.7m (2014: $16.1m), and underlying operating margin was 10.9% (2014: 10.1%).

The Telematics/M2M business unit performed well, achieving revenue growth of 15%, and continues to go from strength to strength, winning new contracts from a range of global automotive manufacturers.  We were the first company to design 4G in-car antennae late last year which has led to additional new business design wins.  The investment we made last year in the Chinese automotive market has led to our establishing a good base with Chinese domestic manufacturers.

Government regulators in both the US and Europe are developing national connectivity architectures as the first step in building the connected highway.  We are exploring the application of our connectivity expertise to this exciting market through our smart antennae.  We are in discussions with a major automotive manufacturer on developing this capability further.

We are proud to have received, for the second year running, Caterpillar's Platinum Level supplier certificate which is only awarded to a very limited number of suppliers.

Revenue for our Bluetooth, Bluetooth Low Energy and Wi-Fi connectivity control solutions performed well.  We continue to target the medical market with good success as the medical sector is increasingly looking to use mission-critical wireless connectivity in managing data collection, clinical applications and patient monitoring.  We anticipate that this will be a good growth market for us in future. 

Infrastructure Antennae Systems won a new installation contract in UAE and for one of London's landmark skyscrapers.  Overall, however, revenue was 9% lower due to the slowdown in our key markets in telecoms, industrial applications and commercial wireless installations.  Wireless Automation and Control Systems (WACS) grew revenues by 4%, driven by a good performance for new system sales for the North American Rail market.  Tasverii™ Insight for Rail, our software platform for increasing productivity through data analysis, performed strongly, following its launch late last year.

The global explosion in connectivity and the Enterprise Internet of Things provides a wide range of new applications for our connectivity solutions, such as the connected highway, connected medical, telecom infrastructure and wireless remote control in challenging industrial environments.  We are already experiencing strong global demand for our telematics expertise as the automotive environment adds both internal connectivity (GPS, infotainment systems, MIMO antennae) and connectivity to the external architecture through the connected highway.   Industry segments that are increasingly employing wireless connectivity solutions such as medical and industrial automation represent future growth potential.  We continue to work on combining our wireless knowledge with our existing capabilities in software and control solutions to drive growth in the near term.     

Board Changes

Tony Quinlan was appointed to the Board as Chief Financial Officer, effective from 28 July 2015, having joined Laird on 1 July 2015.  We also welcome Kjersti Wiklund to the Laird Board as a non-executive director, effective from 1 July 2015.  Kjersti brings significant experience as a senior operations director for several global telecoms companies, including Vodafone, where she is currently Director, Global Technology Operations.  Professor Michael Kelly stepped down on 30 June 2015 after nine years on the Laird Board.  We thank Michael for his long and valuable contribution to Laird and wish him well in his future roles. 

Dividend

We remain committed to delivering shareholder value through organic growth and a sustainable dividend policy.  After substantial increases in the dividend over the three financial years to the end of 2013, the Board has since adopted a progressive dividend policy, increasing returns to shareholders and taking into account both the underlying profitability of the business and its cash requirements allowing dividend cover to be rebuilt over time.

The Board has accordingly declared an interim dividend of 4.40 pence (H1 2014: 4.27 pence), a 3% increase over last year's interim dividend.  The interim dividend will be paid on 4 December 2015 to shareholders on the register on 6 November 2015.

Outlook

Our business performed well in the first half of the year. We continue to drive our strategy of diversifying revenue between sectors and, within those sectors, across market-leading customers. As such, we are increasingly well positioned to benefit from the growth in the 'Enterprise Internet of Things'.   The investment we have made in our people, technology, systems and facilities is delivering operational improvements. This has helped us win new business and contributed to a strong first half.  As a result of this progress, our expectations for the full year remain unchanged.

FINANCE REVIEW

Revenue

Revenue was £305.9m in the first half of 2015, 21% higher than £252.6m in 2014, with the increase driven by organic growth, a full six months' contribution from Model Solution (acquired in April 2014), and foreign currency exchange translation. In US$, revenue was 11% higher year on year, with Performance Materials revenue up 12% to $294.7m and Wireless Systems revenue rising 8% to $171.8m.

On an organic constant currency basis, revenue increased 11% year on year with some currencies depreciating against the US$. The most significant was the Euro which accounted for 10% of Laird's revenue in the first half of the year and which was 18% weaker against the US$ compared with the same period in the prior year.  To calculate organic growth, acquisitions are on a pro-forma basis, based on prior year comparatives as if we had owned the acquired businesses for the equivalent period of the prior year.

Growth with our two largest smartphone customers, together with a strong performance in automotive, were the principal drivers of the revenue increase, offset in part by lower revenues for mobile telecoms infrastructure and, to a lesser extent, gaming consoles.

Underlying Profit

Underlying profit before tax in Sterling increased 36% to £26.9m (2014: £19.8m). Underlying profit before interest and tax in US$ grew 20%.  Underlying profit is defined as profit before tax, exceptional items, amortisation of acquired intangible assets, the gain or loss on sale of businesses, the impact arising from the fair valuing of financial instruments, and acquisition transaction costs.

The table below shows underlying operating profit in US$ for the business segments. Net margins were 10.1% in the first half of 2015 (2014: 9.3%). Net margins increased year on year in both divisions.

The table below provides further analysis in US$ of our underlying operating profit. The gross profit percentage is marginally lower year on year with a change in product mix and is largely driven by higher revenues for smartphones and automotive telematics and lower revenues for mobile telecoms infrastructure. SG&A increased year on year but is lower relative to revenue, falling to 20.6% of revenue from 21.6% a year earlier as we benefit from economies of scale brought by the increase in revenue. There has been an increase in R&D in the first half to $41.7m (8.9% of revenue), up from $40.6m in 2014 (9.6% of revenue) as we continue to drive innovation and invest for growth going forward. As previously flagged, R&D, as expected, is lower as a percentage of revenue as the step up in expenditure over the last three years starts to level out.

Exceptional Items

There was an exceptional net charge of £0.1m in the period. A £0.6m charge for legal costs in respect of a patent lawsuit, where the case has now been settled, was offset by a net £0.5m credit relating to changes to the call and put options in respect of Model Solution less acquisition transaction costs.

Profit after tax

The profit after tax for the period was £14.9m (2014: £9.4m).

Finance Costs 

Finance costs, before fair value adjustments, were £3.8m (2014: £3.7m). Interest cover was 10.4 times. Fair value adjustments on financial instruments resulted in a gain of £1.5m (2014: loss of £2.1m).

Taxation 

The underlying tax charge on underlying profit before tax is equivalent to an average tax rate of 18.5% (2014: 18.5%), which is our best estimate of the outcome for the 2015 full year.

Underlying Earnings PER SHARE

Underlying earnings per share increased 30% to 7.9p (2014: 6.1p).  Underlying earnings are based on underlying profit less underlying tax attributable to the parent company after deducting £0.7m of earnings attributable to the minority interest in Model Solution.  The average number of shares in issue in the first half of 2015 was 267.2m, compared with 266.7m in the first half of 2014.

Cash Flow

In the first half of 2015, Laird produced an operating cash flow surplus of £28.8m (2014: £19.8m), a cash conversion of 94% of underlying operating profit.

Capital expenditure was 0.9 times depreciation in the first six months of the year.  This should rise in the second half of the year to around 1.5 times depreciation for the full year.  Taxation outflows will also increase in the second half and will include approximately an extra £4m in respect of the conclusion of bilateral advanced pricing agreements with the US and Chinese authorities. 

Net Borrowings and Debt Facilities

Overall, net borrowings reduced during the half year by £15.3m to £144.2m. Most of our borrowings and cash deposits are in US Dollars. As at 30 June 2015, £24.8m of borrowings were in Euros.

A cornerstone of our financial planning is to ensure that it maintains committed loan finance which provides sufficient headroom above expected borrowing requirements and has a significant proportion with terms that exceed one year.  We have in place £250m of committed bilateral revolving credit facilities, £225m of which expire at the end of March 2019 and £25m at the end July 2019.  In addition, we have in issue $43m of US Dollar Private Placement loan notes, which have a remaining term of just over one year.  In September 2014, we entered into another Private Placement note agreement comprised of $13m of six year notes and $92m and €15m of seven year notes.

Covenants

A key consideration for financial planning is to maintain sufficient headroom between borrowings and the ceiling set by the associated covenants.  Our bank facilities and US Private Placement loan notes contain two principal financial covenants: net debt / EBITDA (earnings before exceptional items, interest, tax, depreciation and amortisation) and interest cover.

For the six months ended 30 June 2015, net borrowings were 1.4 times EBITDA, against the maximum permitted of 3.5 times.  Interest cover was 10.4 times, against the minimum requirement of 3.0 times.

We routinely estimate our expected headroom against our covenants and test their sensitivity to a number of scenarios to assess our ongoing compliance.  We do not anticipate approaching our covenant limits in the foreseeable future.

Currencies in 2015

The average and period-end exchange rates are set out in note 4.

We aim to balance local currency exposures, but our business operates globally, which can create currency imbalances where operating costs do not match revenues in the same currency.  In the first half of 2015, 74% of revenues were invoiced in US$, 11% in Renminbi and 10% in Euros. We had a substantial US$ surplus in the first half, as just under 40% of costs are in US$ and a relatively small Euro surplus, with just over 7% of our costs in Euros. In most other currencies, costs exceeded revenues, the most significant being the Renminbi which accounted for just under 40% of costs. We aim to cover forward at least 75% of the unmatched cash flows one quarter ahead.

In addition, there is a translation impact in converting profits into our reporting currency (Sterling). Each US $0.01 appreciation against Sterling approximates to an annual increase in underlying operating profit of £0.5m.

The majority of our assets are held overseas, and these are hedged in part by foreign currency loans.

Principal Risks

We operate globally in varied markets.  The principal risks and uncertainties that are or may be faced are disclosed in the 2014 Annual Report, and we expect them to continue to be relevant for the remaining six months of the year.

The risks set out in the 2014 Annual Report include the competitive markets in which we operate, macroeconomic and political factors, exposure to increases in labour costs in China, world commodity prices, and currency fluctuations, the requirement to meet increasingly stringent environmental laws and regulations, and risks related to brand management, our products, the supply chain and operational continuity.

Total Equity

Total equity at 30 June 2015 was £429.1m (30 June 2014: £383.8m).  The reconciliation of total equity is set out in the Group statement of changes in equity.

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report set out on pages 1-9 herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules.  The Board of directors of Laird PLC that served during the six months to 30 June 2015 and their respective responsibilities are set out in the Laird PLC 2014 Annual Report. Details of the changes since the year end are set out on page 5 of this Report.

By Order of the Board:

D C Lockwood, Chief Executive

29 July 2015

INDEPENDENT INTERIM REVIEW REPORT TO LAIRD PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30 June 2015 which comprises the Group income statement, Group statement of comprehensive income, Group statement of changes in equity, Group statement of financial position, Group cash flow statement and the related notes 1 to 13. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.

Scope of review

We conducted our review in accordance with ISRE (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

29 July 2015

Group income statement

(unaudited)

*    attributable to equity shareholders of the parent company

**  before amortisation of acquired intangible assets, exceptional items, deferred tax on acquired intangible assets, goodwill and US capitalised development costs, the gain or loss on disposal of businesses, the impact arising from the fair valuing of financial  instruments and acquisition transaction costs.

Group statement of comprehensive income

(unaudited)

Group statement of changes in equity

(unaudited)

Group statement of financial position

(unaudited)

Group cash flow statement

(unaudited)