Interim results

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.

7 September 2023

Touchstar plc

Interim results for the

Six months ended 30 June 2023

Positive trends continue, confidence in 2023 outcome with dividend introduced and share buyback commenced

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 interim results for the six months ended 30 June 2023 ("H1 23" and "Period").

Key Financials

* CIBLs Coronavirus Business Interruption Loan fully repaid in July 2022

H1 23 financial highlights

·      Total revenue up 20% to £3,726,000 (H1 22: £3,102,000)

·      Recurring revenue up 9.5% to £1,435,000 (H1 22: £1,311,000)

·      Margins declined 440 basis points in H1:23 to 55.4% (H1 22: 59.8%) predominately due to product mix and investment variation

·      Higher revenues drove continued improvement in profitability

o  Profits before tax up 195.2% to £307,000 (H1 22: £104,000)

o  After tax profit growth of 65.2% to £271,000 (H1 22: £164,000)

o  EPS rose by 65.8% to 3.20p (H1 22: 1.93p)

o  EBITDA increase of 17.3% to £657,000 (H1 22: £560,000)

o  Net cash of £2,761,000 at 30 June 2023 (H1 22: £1,602,000)

o  Cash per share of 32.6p (H1 22: 18.9p)

·      New order intake remains solid with the order book standing at £1,313,000 (H1 22: £1,061,000)

·      Board's confidence in the future highlighted by the introduction of an interim dividend of 1p per share

Outlook and strategic progress

o     Business continued to invest in improving products and ensuring excellent service to our customers

o  The buoyant order book and trading momentum underpins the prospects for 2023

o  Solid H1 performance has continued, setting up another year of improved financial performance

o  The Boards expectations remain unchanged for the full year outcome

o  Further growth in total revenue

o  Recurring revenue growth continues

o  Margins to normalise in H2 23

o  Strong cash generation for the year as a whole

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

o  Sales and marketing commenced in several overseas territories and the initial response from these markets has been encouraging

o  Local relationships and distribution partnerships identified, and discussion commenced.

o  Management has identified opportunity to enhance products and enter new markets by potential bolt-on acquisitions again these are at an early stage of development

o  Capital reduction process was approved by the courts on 19 April 2023, the Board's current intention to return excess cash by way of the dividends and through share buyback

o  Post the Period-end, the Company purchased 225,000 shares which are held in treasury at a cost of £203,836. The budget plans for a buyback of £300,000 of shares per year, this should be accretive to EPS

o  Company confirmed the introduced of a proposed interim dividend of 1p a share

Commenting today, Ian Martin, Chairman of Touchstar, said: "Touchstar has traded well in 2023 to date. Revenue growth has translated into another period of improved financial performance. It is perhaps testament to how far we have come that the business has achieved revenue growth of 20% and profits and earnings increases of over 65%.

The order book remains strong, sales prospects encouraging, providing confidence that 2023 will be another constructive year and puts in place the foundations for that trend to continue through into subsequent years."

For further information, please contact:

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

CHAIRMAN'S INTERIM STATEMENT 2023

Overview

Touchstar continued to trade well in H1 2023. Revenue growth has translated into another period of improved financial performance.

As we continue our evolution the standards and benchmarks we set ourselves have been raised. Although by many metrics the performance in H1 2023 was positive I would characterise it as solid.

It is perhaps testament to how far we have come that the business has achieved revenue growth of 20% and profits and earnings increases of over 65% on the same period of 2022.

The order book remains strong, sales prospects encouraging, providing confidence that 2023 as a whole will be another constructive year, firming the foundations for that trend to continue through into subsequent years.

Business Review

The activities within the areas of our business on the whole remain largely buoyant.  Whilst the general business landscape is a little uncertain, Touchstar continues to secure new customers as well as building further sales through existing customer expansion and upgrades.   We have seen some positive signs in successfully cross selling recent product additions into existing customers' businesses.  In addition to this the prospects of both new customers and existing customer business remains healthy, and margins remain consistent with our forecasts.

We have been active in recruitment of additional technical staff to improve delivery timescales and maximise revenue opportunities.  Although impacting the gross margin, this is having a positive effect on the business and provides greater security for product development and support going forward.

We are making good progress in spreading the Touchstar word to new regions and have a number of export opportunities lined up for 2024. Establishing oneself in a new region does take time, however we are encouraged with the positive reception we are experiencing.

Financial results

Revenue grew 20% in H1 23 to £3,726,000 as we convert the order book into actual revenue and cash.

Gross margins were impacted in the period by sales mix and the acceleration of investment in growth. These factors are detailed below and caused a temporary decline of 440 basis points in gross margins to 55.4%.

The growth in revenue resulted in improved operating returns with pre-tax profits up by 195.2% to £307,000.

After a long period of receiving the benefit of tax credits we have become a tax paying entity, with a tax charge of £36,000 (H1 22: tax credit £60,000).

Even allowing for this, both post tax profits and basic earnings per share rose by over 65% to £271,000 and 3.20p respectively.

Recurring revenue grew a respectable 9.5% to £1,435,000 - we expect this trend to continue in H2 as we complete projects originally timetabled for H1 23. This increases our quality of earnings, makes for a more predictable outcome, and underpins future performance.

Gross margins fell 440 basis points to 55.4% as mentioned previously. This was due to three main factors.

The H1 23 general sales mix was more weighted to installation and hardware than the prior year - purely a result of timing issues.

The second included a low margin media sale for a large customer; the supply of Access Control cards that would normally be placed in lesser amounts across several quarters.  We expect margins to normalised by year end.

The last factor was we were more successful than budgeted in recruiting open positions in engineering and development resource as we put in place the infrastructure and talent to effectively manage the anticipated level of future growth.

Combined with salary increases to existing employees this led to step change in cost of sales that will take a period for revenue to build and eliminate this short term drag.

Based on the implementations scheduled for H2 2023 we expect a return to the underlying trend of improving margins.

The modest increase in administrative expenses show we remain focused on costs, productivity improvement and profitability. The overall cost base of the Group increased by 15% being less than the growth in revenue of 20%.

(* inclusive of amounts capitalised)

EBITDA increased by 17.3 % driven by higher revenue and profitability. Investment continued in the business with spend in R&D rising to £503,500 which represents 13.5% of revenue (2021: 16%). Capitalisation and research and development spend moved in line with each other.

* CIBLs Coronavirus Business Interruption Loan fully repaid in July 2022

The balance sheet remains strong with net cash of £2,761,000 at 30 June 2023, equivalent to 32.6 p per share.

The cash generation of the business is seasonal, with the second half of the year historically very strong, and we expect substantial positive cash flow overall in 2023.

The order book ended the period at £1,313,000 (30 June 2022: £1,061,000) an increase of 23.8% over the prior year. This reflects the normalisation of trading across our markets, and the elimination of the last effects of the pandemic.

Dividend

The Board has proposed an interim dividend of 1.0 pence per share (2022: nil), consistent with the first-half increase in earnings per share. 

The interim dividend is expected to be paid on 8 December 2023 to those shareholders on the register at the close of business on 10 November 2023. The ex dividend date will be 9 November 2023.

Capital Management

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 of shareholder value.

The confirmation by the Court in Scotland ("Court") on 19 April 2023 of the reduction in the share premium account now gives the Company the ability to consider returning value to shareholders, either by via payment of a dividend or via share buybacks.

The Company's policy will be to pay an interim and final dividend each year. Thereafter the intention is that dividends will be progressive, linked to profitability and at least 2.5 times covered by adjusted earnings.

As announced the Company has (post the period close) begun a share buyback program. A total of 225,000 shares have been purchased to date at a total cost of £203,836. The budget is to buy back £300,000 worth of shares in 2023.

The Board

The Company has formed a Nomination Committee chaired by John Christmas (the independent non-executive) and Mark Hardy (CEO) to find my replacement, progress is being made to identify and recruit the right person and to ensure a seamless transition.

Current trading and outlook

As ever uncertainties in the economic outlook remain, but nothing that changes the Board's expectations for the full year outcome. We continue to trade in line with our plan and make good progress against our longer-term objective to build a bigger, high quality and predictable business.

The level of demand we are seeing, our order book and the planned activity of our customer base underpins our confidence that the trends in place will continue and result in another good year for the business and create momentum into 2024.

We are positive in the short, medium, and more importantly long-term fundamentals of our business.

I Martin

Executive Chairman

6 September 2023

Unaudited consolidated income statement for the six months ended 30 June 2023

Unaudited consolidated statement of changes in equity for the six months ended 30 June 2023

Unaudited consolidated statement of financial position at 30 June 2023

Unaudited consolidated statement of financial position  30 June 2023 (continued)