03 March 2015 Laird PLC Full Year Results. Laird PLC today announces its final results for the year ended 31 December 2014.

Transcription

1 03 March 2015 Laird PLC Full Year Results Laird PLC today announces its final results. 12 months to 12 months to Increase 31/12/ /12/2013 Revenue, m 537.0m +5% Revenue, US$ $932.0m $839.8m +11% Operating profit 1, 71.2m 67.2m +6% Operating profit 1, US$ $117.4m $ 105.0m +12% Operating margin 12.6% 12.5% Underlying profit before tax m 60.1m +5% Statutory profit after tax 50.2m 30.8m +63% Underlying basic earnings per share 2,3 19.1p 18.6p +3% Statutory basic earnings per share p 11.6p +62% Dividend per share 12.5p 12.0p +4% Strong financial performance with good organic growth for the year 5% increase in total revenue in Sterling to 564.9m 4 (2013: 537.0m). 8% organic 5 increase in revenue. 12% increase in operating profit in US$. 9% organic growth in Performance Materials, driven by strong performances in smartphones and mobile LTE/4G investment. 8% organic growth in Wireless Systems, driven by automotive/m2m applications. 5% increase in underlying profit before tax to 63.2m (2013: 60.1m) after increased investment in R&D and a 4m currency headwind. Full year dividend increased by 4%. Proposed final dividend per share of 8.23p (2013: 7.90p). Delivering against our strategy for growth and creating value Successfully delivered on our strategy to diversify our customer base with 6 customers over $25m in revenues (2013: 5 customers) and 79 customers over $1m (2013: 70 customers). Six consecutive quarters of organic revenue growth. Innovation and customer mindshare underpinned by 10% increase in gross R&D investment to $81.9m (2013: $74.4m). Expanded production footprint with new factories in China, Vietnam and the United States and a new design centre in South Korea. Successful acquisition of Model Solution in South Korea, opening up new markets and customers. David Lockwood, Chief Executive, commented: Our consistent and disciplined strategy of investing for growth and driving cultural change is transforming our business, with good revenue growth and stable profit margins. We have reported a number of successful strategic milestones this year through our focus on innovation, reliable fulfilment and speed to capture customer mindshare and deliver shareholder value. We have a clear strategy and operate in attractive growth markets. We have started 2015 with good momentum and believe that we are well placed for further growth over the year.

2 Enquiries: Laird PLC David Lockwood, Chief Executive Jonathan Silver, Chief Financial Officer Cynthia Alers, VP, Director Investor Relations MHP Reg Hoare Tim Rowntree Tel: +44 (0) Tel: +44 (0) Jamie Ricketts Ollie Hoare 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. An analyst presentation will be held today at am at JP Morgan, 60 Victoria Embankment, London EC4Y 0JP. A live webcast of the presentation will be hosted on A replay of the webcast will also be available on our website for two weeks after the event Operating profit is stated before exceptional items, amortisation of acquired intangible assets, gain or loss on disposal of businesses and acquisition transaction costs. 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. Earnings per share is calculated on a weighted average number of shares of 266.9m (2013: 266.0m). Sterling figures have been translated at $1.65/, the average exchange rate for the year (2013: $1.56/ ). Organic revenue growth is calculated including the contribution from this year s acquisitions as if the acquisitions had been owned in the equivalent period in the prior year. PERFORMANCE REVIEW 2014 was a successful year for our business, with 8% organic revenue growth in US$ and total revenue growth in sterling of 5%, reflecting currency headwinds but including the contribution from Model Solution. We have now achieved six consecutive quarters of growth, and this consistent performance was underpinned by new customer wins and closer partnerships with existing customers over the year. We are seeing the results of executing against our strategy, building a strong business with a clearly defined vision for capturing value for both our customers and investors. The investment in our people, facilities and R&D allowed us to meet strong demand from a range of customers, strengthening our strategic differentiation through innovation, reliable fulfilment and speed. Our businesses performed well over the year, with Performance Materials growing 9% organically and benefiting from strong growth in smartphones and 4G/LTE infrastructure. Wireless Systems grew 8% organically, with strong growth in automotive telematics. Operating margin was 12.6% (2013: 12.5%). As expected, operating profit was heavily weighted to the second half of the year, with the operating leverage from higher revenues and new investments coming on stream in the second half of the year. 2

3 CAPITAL INVESTMENT SUPPORTING GROWTH AND GEOGRAPHIC EXPANSION Over the year, we expanded our production footprint with new factories in China, Vietnam and the United States and opened a new design centre in South Korea. The Vietnam facility came on stream midway through 2014 and is already meeting customer demand. In Shanghai, we moved to an expanded facility to improve production efficiency, expand capacity and increase R&D capability to fulfil our order book commitments. In the United States, we moved our Wireless Automation and Control (WACS) operations to a new and larger facility in Warren Ohio. INNOVATION SUPPORTING INCREASING CUSTOMER MINDSHARE AND DIVERSIFICATION We continue to invest in innovation and the development of new solutions for our customers, with 9% of revenues reinvested in our research and development. This significant investment enables us to be at the forefront of technological development, keep ahead of our competitors and win customer mindshare. We increased R&D spending by 10% to $81.9m, after a similar increase in This has resulted in a number of new customer wins as well as additional new projects from our existing customers. The number of customers generating over $25m of revenues increased to six over the year, while customers generating over $1m increased to 79, achieving one of our strategic objectives and ensuring good diversification across our customer base. Equally, our commitment to reliable fulfilment and speed meant that we were able to meet strong demand from existing customers over the year. We continue to develop our expertise in wireless connectivity, gaining new customers in automotive telematics and maintaining a leading market position in automotive antennae. The increasing electronic content per vehicle is contributing to our strong growth in this industry segment, as the concept of the connected car expands into mid-range models and the value of our content increases. In rail, our software control and connectivity platform Tasverii Insight for Rail secured a new customer win in European rail connectivity software, increasing our total installations to over 5,000 worldwide. We anticipate extending this software platform to new industry sectors in the future, such as fleet asset management. ACQUISITIONS In April we acquired a 51% interest in Model Solution, a South Korean rapid prototyping and design company, for 20.5m. Model Solution has performed well since acquisition and meets our strategy of diversifying both our geographic reach and our customer base by supporting our expansion into the key South Korean market. We have a well-defined and disciplined approach to acquisitions, choosing to develop organically, where possible, through product extension into new markets and gaining mindshare with existing customers. We continue to explore opportunities to accelerate entry into fast-growing market segments that build on our existing skill set and contribute new technologies to expand our product offering. BOARD CHANGES We welcome Mike Parker to the Laird Board as Senior Independent Director. Mike was appointed on 3 March 2015 and brings significant experience as a director of large listed companies with major international operations which will be an important asset as we grow. We would like to thank Paula Bell, 3

4 chairman of the Audit Committee for additionally undertaking the role of Senior Independent Director for the previous year and a half. We would also like to express our particular thanks to Jonathan Silver, who retires at the Annual General Meeting on 8 May 2015, after serving the company for 29 years, 21 as Chief Financial Officer. Jonathan has worked tirelessly for the company through many changes, and we wish him all the very best for the future. CULTURAL CHANGE Our investment in people, cultural change and improved skill sets under the One Laird banner has contributed to our success in winning new customers and has helped to increase collaboration across our businesses. We have made several senior appointments to improve operational execution and deliver increased differentiation across our product range. This investment in people and training has helped us improve customer appreciation of the value we contribute in innovation and design partnership. We thank all our employees for their enthusiasm and dedication to capturing value and customer mindshare. DIVIDENDS We remain committed to delivering shareholder value through organic growth and a sustainable dividend policy. After substantial increases in the dividend over the last three financial years, the Board is adopting 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. This year, the Board has declared a 2014 final dividend of 8.23 pence (2013: 7.90 pence), resulting in a 4% increase in the total full year dividend to 12.5 pence per share (2013: 12.0 pence). The Board s expectation is to increase dividends ahead of inflation over time, whilst taking into account underlying profitability, the cash requirements of the business and potential investment opportunities to drive future growth. The final dividend will be payable on 3 July 2015 to shareholders on the register on 5 June OUTLOOK Over the past two years we have built a strong foundation for delivering sustainable growth in our business. Our strategy of diversifying our customer base has created a more robust earnings stream, and the continuing investment in developing integrated modules and systems is leading to new customer opportunities and collaboration across our businesses. The customer mindshare we are developing across a number of our leading customers will help us remain at the technological forefront in attractive growth markets. All these factors give us confidence in our strategy and our vision. We continue to focus on delivering shareholder value by executing against this strategy. After a successful year in 2014, we have good momentum for further growth in OPERATIONAL REVIEW Performance Materials Over the year, organic revenue growth for the Performance Materials business in US$ was 8.7% to $604.0m (2013: $536.2m). Operating profit grew by 10.8% to $89.2m (2013: $80.5m), and operating margin was 14.8% (2013: 15.0%), reflecting the change in product mix over the year and the strong growth in smartphones. Total revenue grew by 12.6%, including the contribution from Model Solution. 4

5 In Sterling, total revenue grew by 6.8% to 366.1m (2013: 342.8m). Operating profit in sterling grew by 5.0% to 54.1m (2013: 51.5m). Revenue growth was driven by strong performances in smartphones, mobile LTE/4G infrastructure and automotive applications. Revenue from gaming consoles was weaker after a particularly strong performance in the previous year. Tablet revenues were lower due to reduced share and content, as well as the loss of a contract by one of our customers who itself was a tablet supplier. In April 2014, we acquired a 51% interest in Model Solution, which has performed well since acquisition and provided entry into new market segments. Over the year we opened a new factory in Vietnam and a design centre in Seoul to provide additional capacity and design expertise which resulted in a number of new projects and increasing market share with a leading smartphone customer. We launched 24 new products and applications in 2014 which resulted in numerous design wins, including the emerging area of wireless charging and NFC applications in the automotive and medical segments. Our products also gave us entry into new markets such as safety sensors. We continue to enhance our intellectual property portfolio with an increase in patents issued in The ever-increasing demand for more portable and more powerful electronics and the strong growth in connected devices creates numerous challenges for our customers who rely on our expertise to create innovative solutions tailored to their needs. Our customers include global industry leaders in our target market segments, including smartphones, consumer electronics, automotive and industrial applications. Wireless Systems Over the year, organic revenue for Wireless Systems increased by 8.0% to $328.0m (2013: $303.6m). Operating profit grew by 14.1% to $40.5m (2013:$35.5m), and operating margin improved to 12.3% (2013: 11.7%). In Sterling, total revenue grew by 2.4% to 198.8m (2013: 194.2m), reflecting currency headwinds. Operating profit grew by 7.9% to 24.5m (2013: 22.7m). Revenue grew across all Wireless Systems businesses, and, in particular, was driven by a strong performance in the automotive segment. Our Telematics/M2M business also invested in an expanded facility in Shanghai to fulfil its growing order book. The opening of our Brazil facility, scheduled for Q2 2015, will enhance our ability to service telematics customers in South America. Our M2M applications for medical and Wi-Fi have generated a strong pipeline of projects, and the recently refreshed Bluetooth product range. We also devised a comprehensive Bluetooth solution for a global automotive original equipment manufacturer. Tasverii Insight for Rail, our WACS software control platform, was well received by customers, and won a new European rail contract which will go into production in This brings the global number of connected industrial and rail devices to over 5,000. Our WACS business also moved to an expanded and improved factory in Warren Ohio over the year. In our infrastructure antenna business, the WLAN market continued to demonstrate strength, with growth being driven by high-density applications such as stadiums. The public safety sector continued to be slow, despite our good performance against the competition. Collaboration between engineering teams across our Wireless Systems businesses together with our thermal business resulted in the successful Range 5

6 Amplified MultiPoint (RAMP) Bridge project this year. RAMP Bridge is a rugged, outdoor, long-range wireless bridge solution for hospitality, digital signage and other markets which we won through our product s superior throughput and range and our ability to support them as a long-time partner. FINANCIAL REVIEW Segments In 2014, Laird had two segments; Performance Materials and Wireless Systems. Revenue In Sterling, revenue increased by 5% from 537.0m in 2013 to 564.9m in However, with over 70% of our revenue in US$ and given that, on average, the US$ was weaker year-on-year, the underlying performance of the business was in fact much stronger. US$ is a better measure of the business s performance and in US$ the revenue increase was 11%. In US$, Performance Materials revenues were 13% higher and Wireless Systems revenues were up 8%. The table below shows revenue for each segment in US$ together with the incremental revenue contribution from acquisitions made part way through Revenue Performance Materials Wireless Systems Total $m $m $m net of acquisitions Acquisition Total for Revenue on an organic basis was up 8% and is defined as the increase or decrease in revenue, year-on-year, with the base revenue for the prior year including revenue from the newly acquired Model Solution as if Laird had owned Model Solution for the same period in the prior year. Segmental revenue is also disclosed in note 3. Revenue from the largest customer, including revenue invoiced indirectly through its suppliers, amounted to 18% of revenue (2013: 18%). The top five customers accounted for 35% of revenue (including revenue invoiced indirectly through their suppliers) in 2014 (2014: 34%). Underlying operating profit/operating margin The table that follows shows underlying operating profit for the business segments in US$ for 2014 and the comparative data for The net operating margin was 12.6% (2013: 12.5%). Revenue 2013 Performance Materials $m Wireless Systems $m Unallocated Operating profit (11.0) Operating margin 15.0% 11.7% (1.3%) 12.5% 2014 Operating profit (12.3) Operating margin 14.8% 12.3% (1.3%) 12.6% Total $m Operating margin for Performance Materials was slightly lower at 14.8% in 2014 (2013: 15.0%) largely due to changes in product mix with strong growth in revenue for smartphones and a reduction in revenue for 6

7 gaming following the product launches in For Wireless Systems, operating margin was up year-onyear to 12.3% (2013: 11.7%). The table below provides further analysis in US$ of the underlying operating profit. The gross profit percentage of 40.3% is 0.5% lower than in 2013, largely due to changes in product mix in Performance Materials. Performance Materials and Wireless Systems $m $m Revenue Cost of sales (556.7) (496.9) Gross profit Gross margin % 40.3% 40.8% SG&A (189.3) (176.0) Gross R&D (81.9) (74.4) Net capitalised development Operating profit R&D expenditure has increased by 10% to $81.9m. Much of the increase in R&D is in Wireless Systems which typically has design cycles beyond one year and longer product lives than Performance Materials. A proportion of this investment has been capitalised and typically will be amortised over a three to four year period and matched against the revenue benefit. Model Solution was acquired in $0.2m of the R&D increase and $3.6m of the indirect overhead increase is due to the inclusion of a part year of this acquisition. Underlying operating profit increased by 12% in The bar chart below is a high level profit bridge of the change in underlying operating profit change from 2013 to The impact of the Model Solution acquisition has been broken out in order to provide a better understanding of the changes in the base business. 7

8 The increase in gross margin of $24.9m arises from the volume benefit from the organic revenue increase offset in part by a reduction in average gross margins largely due to changes in product mix. The margin increase has been partly offset by the $6.5m increased investment in net R&D (gross R&D less net capitalised development) and the $9.7m increase in indirect overheads. The acquisition of Model Solution contributed $3.7m to the result. Statutory profit Profit before tax from continuing operations was 48.1m (2013: 43.2m). Statutory profit after tax increased by 63% to 50.2m in 2014 from 30.8m in m of the improvement comes from moving from a tax charge of 12.6m in 2013 to a tax credit of 2.1m in includes an exceptional deferred tax credit of 20.1m as a result of the recognition of US tax losses. Underlying profit and taxation Underlying profit before tax in the year was 63.2m (2013: 60.1m). Underlying profit is defined as profit before tax, exceptional items, amortisation of acquired intangible assets, goodwill and US capitalised development costs, the gain or loss on sale of businesses, the impact arising from the fair valuing of financial instruments, and acquisition transaction costs, as set out in note 14. The underlying tax charge on total underlying profit before tax is equivalent to an average tax rate of 18.4% (2013: 17.5%). Profits in the USA continue to be sheltered by amortised goodwill deductions resulting from acquisitions and profits in the Czech Republic are sheltered by incentives. Laird s tax payable largely arises in China and Germany. During the year certainty was achieved over the future availability of tax losses in the US. This exceptional US loss recognition has resulted in a deferred tax credit of 20.1m. Exceptional items There was a net exceptional credit of 0.7m in the year. There was an exceptional credit of 5.4m in respect of the Nextreme development project largely arising from a reassessment of the potential earnout. This was offset in part by a 3.6m provision for patents litigation costs and also offset in part by acquisition transaction costs. Finance costs Finance costs, excluding a loss on the fair valuing of financial instruments of 2.5m (2013: 1.3m profit) were 8.0m, compared to 7.1m in Underlying earnings Continuing underlying basic earnings per share were 19.1p (2013: 18.6p). Underlying earnings are based on underlying profit less underlying tax and exclude deferred tax on acquired intangible assets, goodwill and US capitalised development costs. The average number of shares in issue throughout 2014 was m (2013: 266.0m). 8

9 Cash flow The table below provides a further analysis of cash flow to complement the notes to the finan cial statements. Analysis of cash flow 2014 m Vietnam* investment 2014 m Base business 2013 m Continuing operations Operating profit Depreciation Amortisation of capitalised development costs Share based payments Increase in working capital - (9.8) (19.0) Capitalised development costs - (12.9) (11.6) Capital expenditure less disposals (4.0) (18.5) (12.8) Operating cash flow (4.0) Total operating cash flow Finance costs (net) (7.6) (7.1) Taxation (13.0) (13.0) Trading cash flow surplus Dividends (32.6) (28.6) Trading cash flow after dividends (4.5) (5.0) Acquisitions/disposals (27.0) 2.6 Exceptional costs (9.1) (3.2) Share issues Purchase of treasury shares (1.1) - Movement in current financial assets (1.7) - Exchange translation movement (7.1) 2.6 Increase in net borrowings (50.0) (2.7) *includes South Korean design centre investment. Cash conversion (operating cash flow as a proportion of operating profit) for continuing operations in 2014 was 74% (excluding a 4m investment in the new business in Vietnam and in the South Korean design centre) compared to 65% in Including the investment in a new production facility in Vietnam, capital expenditure increased by 76% in Other major projects completed during the year included the transfer of Telematics/M2M Shanghai plant to new and expanded facility to be able to meet its order commitments going forward and the transfer of the WACS operation in North America to a new and expanded facility. During the year, 26.7m was incurred on acquisitions, including 6.2m of net debt acquired. Much of the exceptional cash outflow was in respect for costs committed and provided for in 2013 but incurred in Treasury policies Laird has a centralised Treasury function, the objectives of which are to monitor and manage the financial risks of the Group and to ensure that sufficient liquidity is available to meet the requirements of the business. Group Treasury is not intended to be a profit centre and operates within a framework of policies and procedures. 9

10 Laird s Treasury uses derivative financial instruments to assist in the management of foreign exchange and interest rate risk, principally forward foreign exchange contracts and interest rate swaps. All hedging is carried out centrally and speculative trading is specifically prohibited by Group Treasury policy. Interest rate risk Laird is exposed to interest rate risk as it holds borrowings on both a fixed and floating basis. Our policy for this risk is to optimise the mix of fixed and floating rate borrowings using interest rate swaps and forward rate agreements to manage Laird s finance costs. Credit and counterparty risk Our policy on counterparty risk management is to place cash deposits and other financial instruments with its relationship banks, all of which also provide credit facilities to Laird. The level of exposure to each bank is continually monitored. As at 31 December 2014, all cash and short-term deposits had a maturity of less than three months. Foreign exchange management We aim to minimise our exposures to US$ transactional currency exposures by matching local currency income with local currency costs. Laird aims to forward cover at least 75% of the unmatched cash flows on a quarterly basis. Foreign currency borrowings are used partially to hedge the currencies of the Group s principal assets and cash flows. Where foreign currency borrowings are i n the same currency as investment in overseas assets they are treated as a hedge of the net investment. Net borrowings and debt facilities Net borrowings were 159.5m (2013: 109.5m). 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. In 2014, we extended and increased our committed bilateral revolving credit facilities to 250m. These will not expire until In addition, we have $43m ( 28m) of US Dollar Private Placement loan notes outstanding, which have remaining terms of two years and which were issued in In 2014, we entered into a further Private Placement note agreement comprising $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 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 year ended 31 December 2014, net borrowings were 1.6 times EBITDA, 46% of the maximum permitted of 3.5 times. Interest cover was 9.7 times against the minimum requirement of 3.0 times. Thus, there was considerable financial headroom. The expected headroom i s routinely estimated against the covenants and the sensitivity to a number of alternative scenarios is tested to ensure ongoing compliance. The Group does not anticipate approaching its covenant limits in the foreseeable future. Currencies in 2014 Local currency exposures are balanced where possible but the Group operates a global business and this creates currency imbalances where operating and procurement costs may not be able to be matched with revenues in local currencies. 10

11 In 2014, over 70% of revenues were negotiated in US$. With under 50% of the cost base in US$, there was a large US$ surplus. Over 10% of revenues were negotiated in both Renminbi and in Euros. In most currencies (other than US$ and Euro), costs exceed revenues, the most significant being the Renminbi (RMB) which accounts for over 30% of our cost base. This imbalance can lead to an adverse impact, in so far as the strengthening of the RMB may not be fully recovered in US$ selling prices. In addition, there is a translation impact in converting profits into the Group s reporting currency (Sterling); each US$0.01 appreciation against Sterling approximates to an annual increase in operating profit of 0.45m. In 2014, on average through the year the US$ was weaker against Sterling than in 2013 and this reduced profits on translation by 4m. The majority of the Group s assets are held overseas and these are hedged in part by foreign currency loans. Pensions There are approximately 250 employees who are active members of defined benefit plans and approximately 1,400 deferred and current pensioners. There is an overall defined benefit pension scheme deficit under IAS 19 (Revised 2011) of 1.7m at 31 December 2014 which is more than accounted for by the unfunded schemes of 6.9m as the funded schemes are in surplus. At 31 December 2013, there was an overall deficit of 3.7m. The principal driver of the year-on-year reduction in the deficit was an increase in the asset values which was offset in part by a decrease in the discount rate used at December 2014 from 4.4% in 2013 to 3.6%. Shareholders funds Equity attributable to owners of the parent company at the 2014 year end were 441.4m (2013: 436.1m). The reconciliation is set out in the Group statement of changes in equity. Return on capital employed Return on capital employed (underlying profit before interest and tax as a proportion of average shareholders funds plus net borrowings during the year) was 12.7% in 2014 compared to 12.0% in

12 Statement of directors responsibilities The following statements are extracted from the Annual Report and Accounts 2014 and are repeated here for the purposes of compliance with DTR These statements relate solely to the Annual Report and Accounts 2014 and are not connected to the extracted information set out in this announcement or the Preliminary Announcement. Statement of directors responsibilities in relation to the consolidated financial statements Each of the directors, whose names and functions are listed in the Annual Report and Accounts 2014, confirm that, to the best of each person s knowledge and belief: the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Group s and the Company s performance, business model and strategy; the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Strategic Report and the Directors Report contained in the Annual Report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face. Statement of the directors responsibilities in relation to the Company s financial statements Each of the directors, whose names and functions are listed in the Annual Report and Accounts 2014, confirm that, to the best of each person s knowledge and belief: the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and the Strategic Report and the Directors Report contained in the Annual Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face. By order of the Board David Lockwood, OBE Chief Executive Jonathan Silver Chief Financial Officer 2 March

13 Group income statement Note m m Continuing operations 3 Revenue Performance Materials Wireless Systems Operating profit before amortisation of acquired intangible assets and exceptional items Amortisation of acquired intangible assets (13.3) (13.6) 5 Exceptional items 0.7 (4.6) 4 Operating profit Finance revenue Finance costs (8.5) (8.0) Financial instruments fair value adjustments (2.5) 1.3 Other net finance revenue pension Profit before tax from continuing operations Taxation 2.1 (12.6) Profit from continuing operations Discontinued operations 6 Profit from discontinued operations Profit for the year Attributable to: Equity shareholders of the parent company Non-controlling interests Basic on profit for the year from continuing operations* 18.8p 11.5p 7 Diluted on profit for the year from continuing operations* 18.6p 11.4p 7 Basic on profit for the year* 18.8p 11.6p 7 Diluted on profit for the year* 18.6p 11.5p 8 Underlying profit before tax** Continuing* Underlying basic earnings per share** Basic from continuing operations* 19.1p 18.6p Diluted from continuing operations* 18.9p 18.4p * attributable to equity shareholders of the parent company ** before amortisation of acquired intangible assets, exceptional items, deferred tax on the amortisation of acquired intangible assets, goodw ill and US capitalised development costs, the gain or loss on disposal of businesses, the impact arising from the fair v aluing of financial instruments and acquisition transaction costs 13

14 Group statement of comprehensive income Note m m Profit for the year Items that will not be reclassified subsequently to profit or loss: 12 Net re-measurement gains / (losses) on retirement benefit obligations 2.8 (2.5) Items that may be reclassified subsequently to profit or loss: Exchange differences on retranslation of overseas net investments 26.0 (8.7) Exchange differences on net investment hedges (8.7) (6.2) Other comprehensive income / (loss) for the year 20.1 (8.7) Total comprehensive income for the year Attributable to: Equity shareholders of the parent company Non-controlling interests

15 Group statement of changes in equity Attributable to equity shareholders of the parent company Equity Non- share Share Retained Translation Treasury Other Controlling Note capital premium earnings reserve shares Reserve Total Interests Total m m m m m m m m m for the year ended 31 December 2013 At 1 January (4.3) Profit for the year Other comprehensive loss - - (2.5) (6.2) - - (8.7) - (8.7) Total comprehensive income/(loss) (6.2) Exercise of share options Share based payments Vesting of LTIPs/Restricted shares - - (1.9) Dividends paid - - (28.6) (28.6) - (28.6) At 31 December (2.4) At 1 January (2.4) Profit for the year Other comprehensive income Total comprehensive income Exercise of share options Share based payments Treasury shares (1.1) - (1.1) - (1.1) Vesting of LTIPs/Restricted shares - - (1.8) Fair value of put option on acquisition (33.3) (33.3) - (33.3) Non-controlling interests on acquisition Dividends paid - - (32.6) (32.6) - (32.6) At 31 December (1.7) (33.3)

16 Group statement of financial position as at 31 December Note m m Assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Derivative financial instruments Retirement benefit assets Other non-current assets Current assets Inventories Trade and other receivables Income tax receivable Derivative financial instruments Assets held for sale Cash and cash equivalents Liabilities Current liabilities Borrowings (0.8) (58.6) Derivative financial instruments (0.6) - Trade and other payables (111.5) (101.7) Current tax liabilities (2.6) (6.9) Provisions (1.8) (1.5) (117.3) (168.7) Net current assets Non-current liabilities Borrowings (222.7) (102.4) Derivative financial instruments (32.6) - Income tax payable (23.6) (20.3) Deferred tax liabilities (69.6) (76.5) 12 Retirement benefit obligations (10.6) (8.5) Other non-current liabilities (1.6) (8.3) Provisions (7.0) (5.2) (367.7) (221.2) Net assets Capital and reserves Equity share capital Share premium Retained earnings Translation reserve Treasury shares (1.7) (2.4) Other reserves (33.3) - Equity attributable to owners of the parent company Non-controlling interests Equity The accounts were approved by the Board of Directors on 2 March 2015 and were signed on its behalf by: D C LOCKWOOD J C SILVER Directors 16

17 Group cash flow statement Note m m 11 Cash flows from operating activities Cash generated from operations Tax paid (13.0) (13.0) Net cash flows from operating activities Cash flow from investing activities Interest received Acquisition of businesses (net of cash acquired) (19.0) 0.1 Purchase of property, plant and equipment (22.5) (13.1) Purchase of intangible assets (internally developed) (12.9) (11.6) 11 Net (outflow) / inflow from sale of businesses (0.3) 2.8 Proceeds from sales of property, plant and equipment Decrease in current financial assets Net cash flows from investing activities (52.5) (20.7) Cash flows from financing activities Interest and other finance costs paid (8.1) (7.9) Net proceeds from issue of ordinary share capital Purchase of treasury shares (1.1) - Increase / (decrease) in borrowings 44.2 (12.3) Dividends paid to equity shareholders of parent (32.6) (28.6) Net cash flows from financing activities 2.9 (48.5) Effects of movements in foreign exchange rates Increase / (decrease) in cash and cash equivalents for the year 12.5 (17.2) 11 Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

18 Notes to the financial statements 1. Corporate information Laird PLC (the Company) is a limited company incorporated and domiciled in the United Kingdom whose shares are publicly traded. The principle activities of the Company and its subsidiaries (the Group) are described in note 3. The consolidated financial statements of the Group for the year ended 31 December were authorised for issue in accordance with a resolution of the directors on 2 March Basis of preparation (a) The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements. (b) The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The consolidated financial statements have been prepared in accordance with the accounting policies followed in the preparation of the Group s annual consolidated financial statements. The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2014 or 31 December The annual report and financial statements for the year ended 31 December 2014 were approved by the Board of Directors on 2 March 2015 along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies. The auditor s report on the statutory accounts for the year ended 31 December 2014 was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies. The auditor s report on the statutory accounts for the year ended 31 December was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act The 2014 annual report and financial statements, together with details of the Annual General Meeting, will be despatched to shareholders on 26 March The Annual General Meeting will take place at 8 May Jurisdictions and judgements are applied in deciding the level of provisions for income taxes. To the extent that the final outcome differs from the tax that has been provided, adjustments will be made to provisions held in the period the determination is made. Put and call options in respect of non-controlling interests in subsidiaries are stated at their fair value at each balance sheet date with changes being taken through the income statement. The Directors continue to adopt the going concern basis for accounting in preparing the annual financial statements. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. 18

19 Notes to the financial statements 3 Segmental analysis The reportable segments for continuing operations (as defined by IFRS 8) are as follows: Performance Materials designs and supplies a range of EMI shielding materials, thermal management Solutions, signal integrity products to a wide variety of electronic devices and prototypes ; and Wireless Systems designs and supplies a range of high specification wireless antennae, and machineto-machine ( M2M ) wireless modules for a number of markets including infrastructure and automotive markets. Performance Wireless Materials Systems Total m m m m m m Continuing operations Revenue from customers Segment profit before: Amortisation of acquired intangible assets (5.5) (4.9) (7.8) (8.7) (13.3) (13.6) Exceptional items (1.5) (0.6) (3.6) (5.4) (5.1) (6.0) Unallocated costs (7.4) (7.0) Unallocated exceptional items Operating profit Finance revenue Finance costs (8.5) (8.0) Financial instruments fair value adjustments (2.5) 1.3 Other net finance revenue - pension Profit before tax Taxation 2.1 (12.6) Profit from continuing operations Discontinued operations Exceptional items Operating profit Taxation - (0.4) Loss from discontinued operations - (0.2) Profit before tax on disposal of businesses: Profit before tax on prior year disposals* Profit from discontinued operations Profit for the year The Group did not have any inter-segment revenue in 2014 and Revenue from one customer of the Performance Materials division and Wireless Systems division represents approximately 83.3m (2013, 84.9m) of the Group s total revenues. Unallocated costs are central costs related to managing the parent company. *These relate to other business segments disposed of in years before

20 Notes to the financial statements 3 Segmental analysis (continued) Performance Wireless Materials Systems Total m m m m m m Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities - borrowings other (see below) Total liabilities Other segment items Capital additions Acquisition of businesses Total additions Depreciation Amortisation / write downs of intangible assets Unallocated assets in the above table include cash and cash equivalents, retirement benefits and other debtors. Unallocated liabilities - other in the above table include liabilities for current tax, deferred tax, retirement benefits, dividends, provisions and other creditors. 4 Operating profit before finance costs and tax m m Continuing operations Revenue Cost of sales (337.4) (317.8) Gross profit Selling, administration and other expenses (127.3) (130.6) Research and development expenditure (net) (41.6) (39.6) Operating profit before finance costs and tax Note (a) Included in selling, administration and other expenses are 0.7m (2013, 4.6m) of exceptional items as described in note 7 to the financial statements and 13.3m (2013, 13.6m) of amortisation relating to acquired intangible assets. (b) Included in research and development expenditure is 4.8m (2013, 3.6m) of amortisation in respect of capitalised development costs. (c) Cost of inventories recognised as an expense within cost of sales was 226.4m (2013, 215.2m). 20

21 Notes to the financial statements 4 Operating profit before finance costs and tax (continued) Continuing Discontinued Continuing Discontinued operations operations operations operations m m m m Operating profit for the year is stated after charging the following items: Staff costs Exceptional items Patents litigation Business acquisition transaction costs Capitalised development costs write downs Buyout of Manufacturing Representative agreement Restructuring costs Other restructuring costs / (credits) (0.2) Acquisition contingent consideration reduction (6.9) - (4.7) - Change in valuation of put and call options in respect of Model Solution (0.8) (0.7) (0.2) Research and development expenditure Incurred Capitalised (12.9) - (11.6) - Depreciation and amortisation Property, plant and equipment Capitalised development costs Acquired intangible assets Operating lease rentals Hire of plant and machinery Other Auditor s remuneration * Audit fees - Audit of financial statements Audit of subsidiaries Total audit fees Tax fees - Compliance services Bilateral Advance Pricing Agreement US-China Advisory services Total non-audit services * Total f ees paid to the auditor were 2.2m (2013, 2.2m). 21

22 Notes to the financial statements 5 Exceptional items m m Continuing operations: Performance Materials Capitalised development costs write downs (1.2) - Other restructuring costs (0.3) (0.6) (1.5) (0.6) Wireless Systems Patents litigation (3.6) - Buyout of a Manufacturing Representative agreement - (5.0) Capitalised development costs write downs - (0.2) Other restructuring costs - (0.2) (3.6) (5.4) Unallocated (costs) / credits Business acquisition transaction costs (1.7) (0.6) Change in valuation of put and call options in respect of Model Solution Acquisition contingent consideration reduction Other restructuring costs (0.2) (2.7) (4.6) Discontinued operations: Other restructuring credits Net credit / (charge) 0.7 (4.4) Note (a) The write down of capitalised development costs of 1.2m in 2014 to their recoverable amount is as a result of a reduction in future expected revenues from the Nextreme developm ent project which was acquired in (b) A patent lawsuit has been filed against Laird in 2014 which is being defended vigorously. Legal costs of 3.6m have been charged in 2014 (2013, nil) to cover the estimated total defence costs. (c) The total cash outlay for exceptional costs in 2014 was 9.1m (2013, 3.2m). (d) The tax effect on exceptional items in 2014 is a 2.6m tax charge (2013, 0.7m tax credit). (e) Restructuring costs include redundancy costs of 0.4m (2013, 1.7m) and site rationalisa tion and closure costs of 0.1m (2013, 1.6m). (f) Discontinued operations in 2013 comprise the Handset Antennae business. (g) The changes in valuation of put and call options in respect of Model Solution included a 0.7m gain (2013, nil) on a put option and a 0.1m gain (2013, nil) on a call option. 22

23 Notes to the financial statements 6 Discontinued operations Results from discontinued operations: Revenue from customers m m - - Operating profit before: - - Exceptional items (see note 5) Taxation - (0.4) Loss after tax from discontinued operations - (0.2) Profit on disposal of businesses: Profit before transfer from translation reserve - - Transfer from translation reserve - - Profit on current year disposals - - Profit on prior year disposals Taxation - - Profit after tax on disposals Profit from discontinued operations Discontinued operations in 2013 comprise the Handset Antennae business. 7 Earnings per share The calculation of basic and diluted earnings per share is based on the profit for the year divided by the daily average of the number of shares in issue during the year. Diluted earnings per share is based on the same profit but with the number of shares increased to reflect the daily average effect of relevant share options granted but not yet exercised where performance conditions have been met and shares contingently issuable m m Profit Profit after tax from continuing operations Profit from discontinued operations Profit for the year Number of shares Number of shares (m) (m) Weighted average shares Basic weighted average shares Options Diluted weighted average shares Pence Pence Earnings per share* Basic from continuing operations Diluted from continuing operations Basic from discontinued operations Diluted from discontinued operations Basic on profit for the year Diluted on profit for the year * attributable to equity shareholders of the parent company 23