This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Touchstar plc

Final Results for the year ended 31 December 2022

Strong results for the year, net cash up 46% and encouraging outlook for 2023

The Board of Touchstar plc ((AIM: TST) "Touchstar", the "Company" or the "Group"), suppliers of mobile data computing solutions and managed services to a variety of industrial sectors, is pleased to announce its final results for the twelve months ended 31 December 2022 ("FY22" and "Period").

Key financials

FY22 financial highlights

·      Total revenue up 10.5% to £6,743,000 (2021: £6,104,000)

o  Recurring revenue growth continues to outpace growth in overall revenue up 15.8% to £2,688,000 (2021: £2,322,000)

o  Recurring revenue accounted for 39.9% of total revenue (2021: 38.0%)

·      Margins improve 220 basis points in 2022 to 61.7% (2021: 59.5%)

·      Growth in revenue and higher margins enhanced profitability.

o  After tax profit growth of 63.6% to £558,000 (2021: £341,000)

o  Profits before tax up 103.9% to £422,000 (2021: £207,000)

o  EPS rose by 63.7% to 6.58p (2021: 4.02p)

o  EBITDA increased of 24.4% to £1,334,000 (2021: £1,072,000)

o  Strong free cash generation of £1,096,000 in 2022 (2021: £609,000)

o  Net cash of £3,476,000 at year end 2022 (2021: £2,380,000)

o  Cash per share of 41p at year end (2021: 28p)

·      New order intake continued to build throughout 2022, the order book ended the year end up 183.3% at £1,700,000 (2021: £600,000)

Outlook and strategic progress

o     Attention of the business is to continue the delivery of excellent service to our customers.

o  The buoyant level of the year end order book and trading momentum underpins the prospects for 2023.

o  Strong momentum for another year of improved financial performance.

o  Further growth in total revenue.

o  Recurring revenue that is over 39.9% of total revenue.

o  Maintained healthy margins and net cash generation.

o  Accelerating investment in the long-term organic growth potential of the business creating a platform for expansion and further sustainable growth.

o  Enter new territories through leveraging existing customer relationships.

o  Commence strategy to create an international distribution channel of our products and services through development of local relationships and distribution partnerships.

o  Opportunities are being identified to enhance our products and enter new markets by potential bolt-on acquisitions.

o  Once capital reduction process is approved by the courts, which we expect to take place during the course of 2023, it is the Board's current intention to increase shareholder value by using excess cash by way of the introduction of a dividend and via a share buyback programme.

Commenting today, Ian Martin, Chairman of Touchstar, said: "2022 was a year of strong progress for Touchstar. The outlook for 2023 is very positive. We have a growth strategy, an experienced and well-motivated leadership team excited by the potential to continue to grow across the Group. Deploying organically generated capital into highly attractive opportunities in our existing markets and starting to roll out a growth strategy internationally".

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Information on Touchstar plc can be seen at: www.touchstarplc.com  

CHAIRMANS STATEMENT

Overview

It was a good year for Touchstar, and another strong performance was delivered in FY22. It is testament to our focus on the fundamentals of great customer service, expert delivery, forward thinking product development and proactive management that we not only achieved a positive financial outcome but built upon our forward momentum.

The order book at year end stood at £1,700,000 which gives us a solid starting position to 2023. In our largest market of petrochemical distribution there continues to be favourable market conditions and robust demand which is encouraging. In Q4 of 2022 alone we took in £2.4m of new orders across our businesses.

We continue to invest in our products and technology capabilities to enable us to serve our customers as best we can - it is our reputation for service, market expertise and our deep relationship with our customers that is the foundation of the business to date, it is these assets that now offer an opportunity for growth into international markets. To succeed we must continue to have a willingness to innovate, continually evolve, and have the ambition to create a sustainable larger business.

Business review

FY22 was a year of solid underlying performance in many ways, but in particular the growth in both turnover and profit is as a result of the investments made in the product set over the last few years.  Our product portfolio is developing and moving ahead with rich functionality, allowing us to secure new business whilst maintaining our existing client base effectively.

We successfully launched and deployed the latest robust android based mobile tablet for the key market area in which we operate.  The enhancements are predominantly in speed performance of the device and improved connectivity options.  Whilst the hardware element of our product set is important, it is no longer the dominant force in our product offering.  The success of the cloud-based software applications we have developed has reduced our reliance on the hardware side of the business.  We are now a complete solutions business, differentiating us from many of our competitors.  Improved margin and increased recurring revenue is an exact result of the introduction of complete solution sales.  Total recurring revenue grew by 15.8% in FY22, including the software licence revenue element which achieved 30.9% growth year on year.

The strength of our strong product set has resulted in a growing and healthy order bank during FY22 and this continues into 2023.  This provides us with a strong confidence level for the business going forward, as it allows us to securely move forward with expansion plans to continue the sales growth and achievements of the last three years.

With the level of cash we have and with cash generation also becoming more predictable, we are now accelerating investment in the long-term organic growth potential of the business by seeking to: 

·      increase sales through increased innovation of our products and solutions;

·      expand into new territories through development of local relationships and partnerships;

·      put in place the skills and structure to tender for larger, complex contracts; and

·      enter into new vertical sectors by adaption of existing products and solutions

In particular, we are concentrating efforts on overseas sales and are confident this will start to bear fruit in 2023.  We have selected a number of European countries and have engaged with the British consulate in two countries already.  To date this is showing positive signs of success.  The Group is now in a stronger position to undertake non-organic growth too, and an acquisition of either a product set or a company in the relevant fields we specialise in will be considered strategically.

Financial results

Revenue grew 10.5% in FY22 to £6,743,000, much of this growth was came from the successfully securing major project contracts in the petrochemical distribution sector, which, as we expected, returned to normalised levels in FY22.

An increased percentage of software sales continued to drive progression in gross margins which rose a further 220 basis points in FY22 to 61.7%.

Costs rose to £3,722,000 in FY22 (2021: £3,449,000) which reflects a general inflationary pressure on costs within the business. Through effective management the increase in costs of 6.7% was lower than the growth rate of 10.5% in revenue, so the business achieved productivity gain in FY22.

Growth in revenue, tight control of costs and higher margins resulted in improved financial returns with pre-tax profits up by 103.9% to £422,000. A strategy of continued investment in the business meant we again benefitted from a tax credit, which in FY22 totalled £136,000 (2021: £134,000). So, in FY22 both earnings per share and profits after tax increased by about 64% to 6.58p and £558,000 respectively.

As we had anticipated recurring revenue growth outpaced the increase in total revenue which enabled the Company to meet expectations of recurring revenue moving to 40% of total revenues. This increases our quality of earnings and makes for a more predictable outcome and underpins performance in future years.

(* inclusive of amounts capitalised)

EBITDA increased by 24.4% driven by improved profitability. Touchstar continued to invest in the business with spend in R&D rising to £1,029,000 which represents 15.3% of revenue (2021: 15.3%). Capitalisation returned to more normalised levels following the pandemic.

(**Net cash is exclusive of the CIBLs balance in 2021 which was subsequently fully repaid during FY22)

Cash generation continues to be strong with £1,096,000 of free cash generated in FY22 including the full repayment of CIBLs in July 2022. This strengthened further the balance sheet with net cash ending the year at £3,476,000, equivalent to 41p per share.

The order book ended the year end at £1,700,000 (2021: £600,000) an increase of 183.3% over the prior year. This reflects the normalisation of trading across our markets, and buoyancy in the petrochemical distribution market in particular.

Capital management

As we stated in our trading update in January with the level of cash and the cash generation of the business becoming more predictable the Board feel it is appropriate not only to invest in the long-term organic growth potential of the business, but to also to consider bolt on acquisitions and develop a clear route for the enhancing shareholder value.

To have the ability to consider increasing to returning value to shareholders, either via share buybacks or the payment of dividends, company law requires the Company to have positive distributable reserves. At present the Company does not have positive distributable reserves due to the deficit on its retained earning reserve which as of 31 December 2022 stood at £2,376,000 (2021: £2,696,000). The Directors are close to achieving a pathway to eliminate this deficit through combining dividend payments from the Company's underlying subsidiaries, profitable trading, and a capital reduction via a court process.

It is hoped to be in a position to pay dividends and start a share buyback programme in 2023.

The Board

It is with a sense of achievement that I have informed the Board of my intention to step down as Chair during 2024, or earlier if a suitable successor is found. An important job for a chair is knowing when to make a transition, and to make sure it is seamless. The time is right for me, as I know the business needs someone with a longer timeframe than mine to evolve the business to the next level, and ensure it fully fore fills the potential it has.

I am happy that the business is in such a good place, has excellent management, is strongly capitalised, and has considerable growth opportunity.

Our people

I would like to thank all our colleagues for their outstanding collective contribution not only in producing such a good performance in 2022, but also for the part they have played in successfully navigating the challenges of the past few years. The strong position the Company finds itself is not down to chance, it is due to their focus, skills, hard work, conviction, and a culture to keep doing the right thing.

Thank you - I have a deep fondness for what is developing into a special business.

Current trading and outlook

The level of demand we are seeing combined with the level of the order book going into 2023 underpins the confidence that the strong start to 2023 results in another good year for the business.

Touchstar in in good shape with a customer service lead approach and a proven cash generative business model. We have a clear focus, robust financial position and ambition that supports our plans for long term sustainable growth.

We remain positive in the long-term potential of our business.

I Martin

Chairman

17 April 2023

CEO STRATEGIC REVIEW

Turnover & profitability

The planned strategic change in the business direction over the past 3-5 years is now evident, with a year-on-year steady improvement in profitability. The real strength for the business is the hard evidence that new and more profitable revenue streams are coming to the fore.  The business turnover grew at a healthy rate of 10.5% over FY21 (more than double the growth rate of FY20 to FY21 of 3.7%).  Cash generation also continues to remain healthy with the Group's year-end net cash position at £3.5 million.  The business made £558,000 profit after tax, a 63.6% increase over the FY21 post tax profit of £341,000.   EBITDA grew by 24.4%, from £1,072,000 in FY21 to £1,334,000.

Turnover, EBITDA & PAT

(* continuing operations)

Recurring revenue

Recurring revenue is now the valuable asset we all envisaged, following our strategic review in 2018.  FY22 saw total recurring revenue increase by 15.8% - a continuing and positive trend.   This success is making a positive impact into the performance and underlying value of the business.  In FY22, the Groups recurring revenue equated to 39.9% of turnover and the Board envisage this percentage will continue increasing.

Group recurring revenue

Software licence recurring revenue

Whilst the Group enjoyed an increase of 16% in total recurring revenue over previous year, the predominant impact in growth of this type of profitable revenue has come from software licence, a key strategic objective. Recurring revenue in software licences grew a marked 30.9% over FY21 performance.  This key area of growth will continue to increase as the change in our business strategy takes effect. As we alluded to in FY21, the growth line in software licence revenue has now exceeded hardware recurring revenue and is expected to grow further still in 2023 and beyond.

Group recurring revenue

All the complete solutions the Company now offers, consist of a majority of inhouse owned software and hardware (Touchstar IPR) which eliminates our reliance on third party suppliers and provides maximum flexibility in growing the sales and profit line of the Group.  This move has allowed us to increase the sale of software development as customers require tweaks and modifications to our standard products to suit their operation.   The chart below illustrates the increases in chargeable software development and support over previous years.

Customer requested software developments

Gross margin

We continue to secure large contracts with blue chip companies across the UK.  The strategy to supply a SaaS (Software as a Service) model to the industry is now widely accepted.  This now provides consistent recurring revenue greater than in previous years. Combining increases of recurring revenue and the above software development charges continues to provide a healthy gross margin for the Company, of 61.7% of the Group's turnover in FY22 (FY21: 59.5%).

The Group operates under the Touchstar brand providing consistent brand awareness of the operating companies which has been successful in promoting a cohesive and singular business and all can be accessed under one web site: www.touchstar.co.uk.  

Shareholder value

The year-on-year improvements in the business has contributed significantly to shareholder value as we continue this positive trend.  EPS increased over 60% from 4.02 pence to 6.58 pence in 2022.   In a turbulent year of company stock valuations, Touchstar share price has outperformed the market and sector as a whole.  The share price movement during the trading year of 2022 increased a modest 13.3% from 75 pence to 85 pence per share. 

Consolidated income statement for the year ended 31 December 2022

Earnings per ordinary share (pence) attributable to owners of the parent during the year:

There is no other comprehensive income or expense in the current year or prior year and consequently no statement of other comprehensive income or expense has been presented.

All activity in 2022 relating to continuing operations.

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company income statement. The profit for the Company is detailed in the statement of financial position and the Company statement of changes in shareholders' equity.

Consolidated statement of changes in equity for the year ended 31 December 2022

Company statement of changes in equity for the year ended 31 December 2022

Consolidated and Company statements of financial position as at 31 December 2022

Consolidated and Company statement of financial position as at 31 December 2022 (continued)