• Home
• Investor Relations
• Latest Results

Latest Results

Preliminary Results for the year ended 31 December 2007

SPI Lasers plc (AIM:SPIL), a leader in the design, development, engineering, and manufacture of optical fibre-based lasers, reports its Preliminary Results for the year ended 31 December 2007.

Highlights

• Revenue nearly doubled to £13.05 million (2006: £7.1 million)
  
  
• Product revenue of £11.8 million (2006: £4.7 million) representing growth of 150%
  
  
• Product revenue of £11.8 million (2006: £4.7 million) representing growth of 150%
  
  
• Significant technological progress culminating in the successful launch of SPI’s G3 and R4 product ranges ahead of schedule, based on the new low cost product platform
  
  
• Over 50 new accounts won based on new platforms in last six months many of which are already repeating
  
  
• Cash balance as at 31 December 2007 of £11.3 million presenting a strong close to the year

Commenting on the Preliminary Results, David Parker, Chief Executive of SPI, said:

“The year saw the continued rapid development of the business and closed with significant achievement on several fronts.  We successfully resolved the technical issues involving the supply base experienced earlier in the year. New product platforms for both MARKING and MICRO have been delivered ahead of schedule. “Revenue continued to almost double year on year, with significant new customer wins, despite the challenge of an increasingly competitive market environment. Encouragingly product sales to the Asian market grew even more strongly, overtaking the US to become SPI’s lead market, and accounting for approximately half of SPI’s worldwide product sales.

“SPI’s share in each of its three main market areas, namely MICRO, MEDICAL and MARKING, continued to expand, with growth rates ahead of those in the fibre laser market as a whole. Significant technological progress was also made, with new product platforms delivered ahead of expectation and at cost and performance levels consistent with our plan to transform the profitability of the business during 2008.

“The fundamental objective for the Group in the year ahead is to achieve profitability before we exit the year and to maintain a positive cash position. In order to achieve this we will concentrate on three fundamentals:

• prioritising new business consistent with our margin objectives;
• continued variable cost reductions enabled by our new platforms; and
• reducing our infrastructure costs consistent with the demands of the business

“The worldwide fibre laser market continues to grow rapidly, despite the well-publicised softness in the US economy, which has had an effect on our MICRO business in the first quarter. Nevertheless our overall order pipeline remains strong. Our new platforms are demonstrating good performance and high reliability with a widening group of repeat customers. Margins have begun to improve with further gains expected through 2008. Action is being taken to control overheads. The Board expects strong revenue growth in 2008, and remains committed to achieving profitability in Q4 this year.”

back to top

Chairman’s Statement

Overview
I am pleased to report that the Group has made considerable strides in its development during 2007 and I believe is now well placed to meet the challenges of the rapidly changing market environment.

Fibre laser revenue is growing at a rate several times greater than the general laser market by both an increasing range of applications which exploit the inherent capability of the technology and also by the replacement of more mature technologies.

The attractiveness of the market has led to several companies declaring an intention to join the existing industrial scale players where SPI is now established as the clear number two.  The companies seeking to join the market are, however, potentially a long way from achieving the delivery of an effective product based on sound innovative technology that does not infringe the intellectual property of the more established players. 

In contrast, SPI has made significant technological progress during the year culminating in the successful launch of its G3 and R4 product ranges ahead of schedule.  These platforms have addressed the previously reported quality issues that slowed our progress in the middle of the year, and are beginning to deliver a marked improvement in gross margin which should allow the Group to make continued progress in 2008.

SPI’s Performance during 2007
In spite of the difficulties encountered in the middle of 2007, revenue continued to almost double again this year and perhaps more importantly we continued to expand our share of each of our three main market areas, namely MICRO, MEDICAL and MARKING.  The rate of new account wins and repeat business from established customers was encouraging particularly at the end of the year based on acceptance of the new platforms. The market dynamics led to significant and deliberate competitive pricing pressure during the first half of the year. Whilst this has had the positive effect of reducing the price premium hurdle of fibre lasers compared with more traditional technologies, so increasing the accessible market, the effect in the short term on SPI’s profitability was sufficient spur to accelerate our planned investment to develop and deliver our new lower cost product platform, which in turn led to the Group refinancing in October 2007.

Financing

As referred to in last year’s annual report, during February 2007 SPI completed a £10 million net equity fundraising from existing shareholders and a number of new supporters.

During October 2007, however, the changes in the competitive market environment, the cost of developing a lower cost platform and resolving the quality issues necessitated the Group raising a further £10.5 million (net) in equity.  The fundraising comprised not only the placing of new shares with institutional investors, but also a strategic investment by The Furukawa Electric Co., Ltd of £2.0 million

The Board

The composition of SPI’s Board has changed during the year.  David Cheesman, on his retirement from Advent Venture Partners, is reducing his commitments and has retired from the Board.  David had served SPI since 2003, when Advent became one of the Group’s leading investors prior to flotation.  We thank him for his wise counsel over the past five years.

After the interim results, Steve Berg, our Chief Financial Officer, also left the Group in order to concentrate on his family interests in Nottinghamshire.  Steve was appointed CFO in February 2003 and in over five years made a considerable contribution to the development of SPI.

In September 2007, we welcomed David Holloway as our new Chief Financial Officer. He has already made a significant impact both to the Board and to the financial and operational efficiency of the business.

Employees

The composition of SPI’s Board has changed during the year.  David Cheesman, on his retirement from Advent Venture Partners, is reducing his commitments and has retired from the Board.  David had served SPI since 2003, when Advent became one of the Group’s leading investors prior to flotation.  We thank him for his wise counsel over the past five years.

After the interim results, Steve Berg, our Chief Financial Officer, also left the Group in order to concentrate on his family interests in Nottinghamshire.  Steve was appointed CFO in February 2003 and in over five years made a considerable contribution to the development of SPI.

In September 2007, we welcomed David Holloway as our new Chief Financial Officer. He has already made a significant impact both to the Board and to the financial and operational efficiency of the business.

Prospects

As well as prospective new entrants into the market, last year also saw new alliances being forged in the fibre laser technology world.  For example, Trumpf and JenOptik announced a joint venture in mid-year; Rofin acquired a leading merchant supplier of specialist optical fibre (Nufern) in December, while Furukawa became a small, but strategic, shareholder in SPI in October.  The pace of change in the market place is increasing. It seems unlikely that the manoeuvring for advantage amongst the players is yet complete.

SPI has begun the current year with renewed confidence in our ability to produce competitive products. Our new product platforms are transforming margins and are attracting increasing customer interest.  Field reliability and functional performance have been most encouraging.

Activity in the area of Development Contracts tends to be cyclical and driven by investment programmes. After a low ebb in 2007, the outlook for 2008 looks more promising with at least one major award close to final adjudication.

The worldwide fibre laser market continues to grow rapidly, despite the well-publicised softness in the US economy, which has had an effect on our MICRO business in the first quarter. Nevertheless, our overall order pipeline remains strong. Our new platforms are demonstrating good performance and high reliability with a widening group of repeat customers. Margins have begun to improve with further gains expected through 2008. Action is being taken to control overheads. The Board expects strong revenue growth in 2008, and remains committed to achieving profitability in Q4 this year.

Graham Meek
Chairman
01 April 2008

back to top

Chief Executive’s Review

Overview

2007 was a year of considerable challenge for the business and I am pleased to report that the organisation in surmounting these challenges is, I believe, in a much stronger position than last year to exploit the current opportunities in the market place.

Revenue of £13 million was broadly in line with latest market expectations, almost continuing the historic pattern we have established of doubling year on year, which we believe is an indicator that we have now reached critical market share in our selected sectors such that future growth can be directed to those areas producing the best return. The ability to make these choices, predicated on the new product platforms introduced towards the end of 2007, will be crucial if we are to navigate through the uncertain global market environment of 2008, and secure our primary objective of transforming the Group from an investment phase company to a profitable enterprise.

Having secured a number of significant contract wins in December 2007 with a combined revenue potential of over US$10 million, and a rapid acquisition of new customers based on our new product platforms, we finished the year with cash resources at £11.3 million, ahead of expectation.  Continued focus on cash management remains a fundamental objective of the business.

The first half of the year experienced strong volume growth in line with market expectations.  The industry market leader, however, introduced a radical, competitive pricing strategy in mid-year. This had the benefit of widening the accessible market through the removal of the fibre laser price premium compared with the more established technology alternatives. However, it also had the downside of eroding the economic return of our then product offering. This was compounded by the previously reported quality issues.  This resulted in SPI’s management team focusing on accelerating the development of new product platforms, which could not only offer enhanced performance and reliability, but should also positively transform margin performance.

The new product platforms have been launched ahead of schedule, have been well received by customers and should lead to strong growth again in 2008.  The ‘once-off’ competitive pricing action in the first half of the year has created a new price reference level in the market which has remained relatively stable and it appears to have achieved its objective of widening the accessible market. 

Products and Markets

In previous years, SPI’s business was dominated by one area: MICRO.  As we have grown this is no longer the case and therefore we will treat each sector in turn:

MEDICAL:  Our revenue has been historically dominated by OEM module supply to leading machine integrators operating in the aesthetic and cosmetic arena.  We expect to build on this success but also to add more diversification in the future.  The SPI product is a module operating at a wavelength of 1550nm and leverages our core competencies in special fibre design and production.  We began the year with two customers who had high initial demand which then reached a plateau.  We ended the year with increased demand, potential for significant contract wins, a new higher-power product, business spread across four key accounts and the ability to migrate this product to our new lower cost standard platform.

MICRO: This market is a diverse set of cutting and welding applications in industries such as medical component manufacture, automotive, consumer electronics and semiconductors.  This has been the longest-standing market sector for SPI.  During the year the product line continued to grow steadily but suffered the most price erosion in 2007.  We responded with dramatic improvements in our costs, which were achieved by completely redesigning the product with much improved active fibre.  Not only do these new platforms have lower material costs but they allow significant consolidation of historic platforms which yields a paradigm shift in business simplification and therefore fixed costs.

MARKING: SPI has developed a leading pulsed laser product based on a different architecture to its leading competitor.  Whilst the issues encountered during 2007 delayed its general availability in the market, I am pleased to report a successful new platform introduction took place towards the end of the year, again ahead of schedule.  This new platform introduction not only addressed the quality issues but significantly lowered the cost of production.  In December we announced several large contract wins for this product family.  Success in MARKING has been allied with the penetration of new and diverse markets, such as solar cell production, utilising the advanced performance attributes of the standard product. Some of these sectors will take time to develop into volume, and may require some modest product customisation to secure significant design wins for the second half of 2008.

A note on technology

At the heart of our products, and indeed our business, lie our core competencies of optical fibre production and laser engineering.  A highlight of 2007 was the improvement in the raw efficiency of our fibre and associated optical sub-assemblies.  This has enabled novel architectures and end product designs to be deployed.  It is these improvements, along with the support of our strategic suppliers, which have enabled such dramatic shifts in the production costs of our whole portfolio.  In developing the new building blocks, we have also kept an eye to the future, ensuring that the new platforms are fully scalable to higher powers which will enable future entry into new markets

Looking ahead

We see opportunities for improved top line performance across our sectors and geographic markets. The rate of new customer wins in MARKING is particularly pleasing with over 50 new customers added in the last six months and we have already announced the continued expansion of existing verticals for example securing a further contract win in the MEDICAL sector.  Like many other companies in our sector, however, the uncertain capital equipment market, notably in the US, could disproportionately affect our MICRO business.

The fundamental objective for the Group in the year ahead is to achieve profitability before we exit the year and to maintain a positive cash position. In order to underpin this we will concentrate on three fundamentals:

• prioritising new business consistent with our margin objectives;
• continued variable cost reductions enabled by our new platforms; and
• reducing our infrastructure costs consistent with the demands of the business

SPI achieved many of its goals in 2007 and particularly at the end of the year further contract wins successfully created positive business momentum on which we continue to build.  The whole Group has developed considerably and I am looking forward, with renewed confidence, to dealing with the future challenges of growth and business maturity and to achieving our objective of profitability in the last quarter.

Dr. David Parker
Chief Executive Officer
01 April 2008

back to top

Financial Review

Overview
2007 saw the continued rapid and significant development of the Group, fuelled by the expansion of the fibre laser market, bringing the year to a close broadly in line with market expectations.

The year’s highlights included:

• the continued trend of almost double year on year revenue growth, including the rise of our Asian business to overtake the USA as our lead market;
• competitive pricing pressure from the market leader causing the re-alignment of sales price reference levels;
• the resolution of a number of technical issues;
• a year of unfavourable exchange rate movements; and
• the rapid development and launch ahead of schedule of new product platforms, with enhanced performance and reliability and with improved cost profile which should increase product margins in 2008.

The year closed with an additional equity fundraising (£10.5 million net) and the announcement of significant new customer and vertical wins which will account for approximately US$10 million of fibre laser product revenue in 2008.

Revenue
Total revenue grew by 84% compared with last year, from £7.1 million to £13.1 million, of which product revenue  were £11.8 million, having grown by 150% from £4.7 million last year.

Contract revenue, which relate to US and UK defence and aerospace projects, were down 45% to £1.3 million, reflecting the cyclical nature of the development contracting market.

Asian revenue was £6.3 million, having grown very strongly in the year (390%) and overtaking the US to become SPI’s lead market.  Asia now accounts for approximately half of SPI’s worldwide product revenue, more than double last year’s proportion.

Conversely, our product sales performance in the US market (£2.5 million) has remained at almost the same level and the proportion of sales has slipped from first place to third, with sales to Europe increasing to £2.8 million.

Sales in the UK market (£1.5 million) during the year were 11% of the total worldwide sales.

Operational Performance

Gross Loss
The gross loss during the year was £1.9 million, which was a significant improvement on last year’s performance (£3.1 million loss) and particularly after taking into account the major volume increase and the dislocation inherent in the development of new product platforms.  The business has demonstrated that its pre-dominantly fixed cost manufacturing base can leverage significant increased volume throughput with beneficial effect on margin performance for the future and particularly with the improved cost profile of the new product platforms leading into 2008.

Administrative Expenses
Administrative expenses were £10.7 million in the year, some £2.3 million higher than last year, an increase of 27% due to both increased R&D costs, associated with developing the new product platforms, and also due to the expansion in sales.

Administrative expenses include £3.0 million (2006 £2.4 million) of Group funded product R&D costs, of which £2.8 million was charged against the profit and loss account and the balance capitalised.  In addition, and charged against cost of sales, the Group invested £1.1 million on customer funded R&D (2006 £2.1 million).

Administrative expenses also include Sales and Marketing costs, provisions for royalties, warranty and also general administration costs.  These costs increased by some 14% during the year consistent with increasing the worldwide sales presence and scale of the business.

Taxation
SPI has an unrecognised deferred tax asset of £14.9 million (2006; £12.8 million), which has primarily arisen from losses incurred to date.

In 2007 an R&D tax credit of £0.4 million (£0.4 million in 2006) was recognised: the associated cash receipt from HM Revenue & Customs & Excise is expected to be received in the second half of 2008.  (The 2006 related tax credit was received in February 2008).

Loss after Taxation
The loss after taxation for 2007 was £12.3 million (2006 £11.0 million) an increase of £1.3 million (12%), due primarily to the issues referred to above under Gross Loss and Administrative Expenses.

Dividend
The Directors do not propose to pay a dividend (2006: nil). SPI’s current policy, which is kept under regular review, is to retain future earnings for the development and expansion of the business. 

Headcount
Average heads increased from 126 in 2006 to 183 in 2007 associated with the increasing scale and geographic spread of the business.

Sales increased from £56,000 per head in 2006 to £71,000 per head in 2007, an increase of 27%, whilst the loss after tax per head decreased from £87,000 to £67,000, a decrease of 23%, during the same period.

Fixed Assets
Gross fixed assets increased by £0.8 million during 2007, comprising £0.5 million of property, plant and equipment and £0.3 million of intangible assets, the latter associated with the capitalisation of Development costs for the first time consistent with IAS38.

Depreciation for 2007 was £0.7 million (2006: £0.6 million).  Accumulated depreciation as at 31 December 2007 stands at £11.4 million some 81% of the gross cost of the assets.

Working Capital
Working capital, namely, net current assets excluding cash and loans, decreased from £3.1 million to £2.7 million compared with the previous year, which was a creditable performance in the light of the significant increase in the scale of the business.  Increased inventories (£0.9 million) were more than offset by increased creditors (£1.2 million), whilst debtors remained flat, having benefited from focused collections management during the fourth quarter.

Loans
The total of Loans (both long and short term) outstanding as at 31 December 2007 was £2.5 million, a decrease of £0.3 million compared with the previous year.  No new loans were taken out during the year.

Equity Fundraising
The Group raised a total of £21. 4million gross, £20.6 million net after expenses, during the year, in order to fund the expansion of the business and the development of new products and working capital demands of expansion and resolution of the technical and market challenges encountered during the year.

The placing during February 2007 raised £10.5 million gross, £10.1 million net after transaction costs of £0.4 million.  The costs were the direct costs of the share issue and have been set off against the share premium account.

The placing during October 2007 raised £10.9 million gross, £10.5 million net after transaction costs of £0.4 million.  The costs were the direct costs of the share issue and have been set off against the share premium account.  The cash balance as at 31 December 2007 was £11.3 million, considerably ahead of market expectations, due primarily to more efficient resource management.

International Financial Reporting Standards
The International Financial Reporting Standards (IFRS) came into effect for AIM listed companies on 1st January 2007 and accordingly these accounts as at 31 December 2007 are the first accounts for the Group which comply with these standards.

Financing

As a result of the issues set out in the trading statement on 21 August 2007, and as explained in the Chairman’s statement, the Group requires further funding to meet its working capital requirements prior to the end of this financial year.

David Holloway
Chief Financial Officer
1 April 2008

back to top

Consolidated income statement

For the year ended 31 December 2007

back to to

Consolidated statement of recognised income and expense
For the year ended 31 December 2007

back to top

Consolidated balance sheet
at 31 December 2007

back to top

Consolidated cash flow statement
For the year ended 31 December 2007

back to top

Notes

The notes to are available in the PDF download

Page last up-dated: 2 April 2008