13 September 2021

Touchstar plc

Interim results for the

Six months ended 30 June 2021

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 2021 ("H1 2021").

This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those obligations.

H1 2021 Financial Highlights

·      Emerged from pandemic with solid finances, improved products and retention of all our talent

·      Profitable outcome for H1 2021 driven by tight cost control and higher margins

·      Order Book continues to build

·      Recurring revenue grew at 13.2% and makes up 38.5% of total revenue

·      H1 2021 Revenue 7% higher than H2 2020 as activity picks up

Operational Highlights

·      Secure a major CCTV installation programme for a government department which will conclude during the second half of the year.

·      Transportation sector wins include a new customer with a 100-vehicle fleet (which is now live), a pharmaceutical prescription distribution direct to the door business and a third-party logistics operating business.

·      Developed "Podstar" a complete software suite for transportation businesses.

·      Several large users presently running successful pilots with planned roll out in 2022.

Outlook

·      H2 2021 started well and expect strong result

·      FY 2021 we now expect to be above market expectations despite continued uncertainty

·      Current prospects give us confidence that 2022 will be an even better year

·      Order book as of the 10 September 2021, stood at £836,000.

* Refer to note 3 for details and note 7 for reconciliation

** CBILs Coronavirus Business Interruption Loan

Commenting on the results, Ian Martin, Chairman of Touchstar, said:

"Touchstar has emerged from the pandemic a stronger, higher quality business with good operating leverage. The company has traded well in recent months, as a result we now expect full profits to be ahead of our previous expectations."

"These results once again demonstrate how well management has steered the company through Covid-19. The business has shown itself again to be resilient, trading profitably in what was another disrupted period."

"Our publicly stated ambition was to emerge from the period of enforced restriction with solid finances, improved products, all our talent and renewed energy. This has been achieved, and management is now firmly focused on unlocking the longer-term growth potential of the business."

For further information, please contact:

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

CHAIRMAN'S INTERIM STATEMENT 2021

Touchstar has emerged from the pandemic a stronger, higher quality business with good operating leverage. The company has traded well in recent months, as a result we now expect full year profits to be ahead of market previous expectations.

These results once again demonstrate how well management has steered the company through Covid-19 ("C-19"). The Company has shown itself again to be resilient, trading profitably in what was another disrupted period.

Our publicly stated ambition was to emerge from the period of enforced restriction with solid finances, improved products, all our talent and renewed energy. This has been achieved, and management is now firmly focused on unlocking the longer-term growth potential of the Company.

Operational Review

The Group's positive first half performance is a result of renewed activity in our markets, increased margins, and a tightly managed cost base.

Touchstar operates in three sectors. There can be variation year on year in the contribution of each, but broadly; 40% of revenues come from Fuel Distribution, just over 30% from Access Control and remainder from Transportation and Logistics.

All our businesses have a commonality of technology platform, using in house developed solutions, which are cloud resident (Azure) for speed of deployment and accepted by customers as a secure system that is very scalable.

During the 6 months to 30 June 2021 the Company continued to attract new customers, as well as servicing and supplying long standing clients, and sales developed progressively through the period. The subsequent easing of restrictions has made a difference; thus, we anticipate a stronger outcome in the second half of 2021. 

Over the last twelve months we have modernised our Access Control technology, as we reorient the business to think more as a solutions provider. This enables us to compete for larger more complex tenders, which bring the benefit of multi-year recurring revenue, differentiating us from "box shifters" and making for a more stable, higher quality business. Indeed, the successful integration of CCTV and facial recognition into our product set enabled our Access Control business to secure a major CCTV installation programme for a government department which will conclude during the second half of the year.

The petrochemical distribution sector has continued to generate strong income yield with healthy software revenues and increased recurring revenue.  We have several trials in place and believe the activity in this sector has endured the restrictions well.   Major projects in this sector tend to have lead times of 6-9 months, and it is only now that new major projects are being confirmed for later in 2021 and for 2022 after a pause last year due to the onset of the pandemic.

In our standard Logistics operation, there has been positive activity too. This historically has been the most economically sensitive and short cycled business.  A mixture of new business and existing client purchases has driven sales growth, a marked improvement over 2020.

In the transport sector, the gaining of new clients has been more than a little challenging, with limited scope for site meetings during the government restrictions and guidelines.  However, success in the food distribution supply chain continues, with a recent new customer with a 100-vehicle fleet now live.  Two more recent new clients include a pharmaceutical prescription distribution direct to the door business and a third-party logistics operating business. Inhouse, we have developed "Podstar" into a complete software suite for transportation businesses; although currently the smallest part of the group it is growing rapidly and has high margins, with revenue recurring over a 3-5-year period.

Financial Results

The prior year financial results included benefits from several temporary / one off factors which have been detailed in prior reporting and repeated in this statement to help in the understanding of prior year comparison to what is an improved underlying performance.

Revenue was £2,895,000 for the H1 2021, a decline of 9% compared to the same period in 2020 (six months ended 30 June 2020: £3,178,000). The decline was less than expected.

A strong cyclical recovery in our warehouse and logistics business helped offset the delay in longer cycle projects which resulted from the "lost six months" of activity at the onset of C-19. This headwind has now passed through the sales cycle illustrated by revenue growth of 7% when comparing the six months ended 30 June 2021 to the last six months of 2020 of £2,708,000.

Recuring revenue grew by 13.2% to £1,115,000 in the six months ended 30 June 2021 (six months ended 30 June 2020: £985,000) and now represents 38.5% of sales (six months ended 30 June 2020: 34%).

Margins improved by 6.4% to 56.5% (six months ended 30 June 2020: 50.1%) as software sales become a higher proportion of revenue.

As of 30 June 2021, the order book had grown by 20% to £621,000 when compared to the same time last year (30 June 2020: £519,000). As of the 10 September 2021, the order book stood at £836,000.

Overhead costs were £1,586,000, an increase of 2.7% compared to the six months ended 30 June 2020 of £1,544,000. The prior year figure benefited from several one-off savings such as temporary salary reductions and other self-help measures introduced during the pandemic, these totalled £202,000. So, the underlying structural cost base was lowered again which mitigated the impact of restricted trading.

During the period ended 30 June 2021 the company reduced the use of the Coronavirus Job Retention Scheme. The benefit received in the period was £33,000 (six months ended 30 June 2020: £113,000).

As of 30 June 2021, our cash less overdraft and CBILs position was a healthy £1,301,000 (30 June 2020: £1,314,000). A decline from the year end position of £1,771,000 was expected and related to the normalisation of trade and other payables as we unwound deferred amounts due under the Government's support packages to business.

Touchstar was profitable for the six months ended the 30 June 2021. We achieved a pre-tax profit of £52,000 (six months ended 30 June 2020: £130,000). At face value that would appear to be a decline, however the six months ended 30 June 2020 included £315,000 of benefit from several temporary / one off factors as outlined above (detailed in note 8). If these items are stripped out the underlying performance shows further improvement in comparison to the prior year.

On an after-tax basis the profit for the six months ended 30 June 2021 was £112,000 (six months ended 30 June 2020: £150,000), again the prior year comparison benefits from several one-off factors as outlined above.

This translates into basic earnings per share of 1.32p (2020: 1.77p).

Outlook For 2021

Our confidence in the outlook for the remainder of 2021 is based upon the positive trends we are seeing in the business. Although, nothing is totally smooth, as the year proceeds the trend is for sustained economic activity and demand, with a welcomed acceleration in the rate of revenue growth.  The cost base will be tightly managed, and margins should at least be maintained at current levels as software sales continue to build.

We now expect the outcome for 2021 to be ahead of market expectations.

While there remain some short-term supply chain constraints, through proactive management of inventory we have secured an adequate level of components to deliver the pipeline of orders currently expected. That said, further upside for 2021 is capped by a lengthening of lead times and shortages of key items - meaning additional orders beyond that level will realistically only be delivered in 2022.

Outlook for 2022

We have given a consistent message that it would be 2022 when the underlying growth rate in all our businesses harmonise, free of the constraints of uncertainty and social restriction. From conversations with existing and potential new customers the prospects for 2022 appear considerably better than for a long time. This gives us confidence in the longer-term and thus expect progression in our future financial returns.

Our strategy is to capitalise on the forward momentum gained, using internally generated cash to accelerate our rate of organic growth, innovate our products, enhance our solutions, invest in our people, and become a better business.

Conclusion

I want to conclude by thanking the whole team at Touchstar - it has been a challenging time and the good place the business now finds itself is solely down to their hard work, belief, and determination - thank you.

Touchstar entered the pandemic an evolving unproven business - we emerged a higher quality business. That is a start, now management are challenged to build on this foundation, turning potential into reality thus creating value for shareholders.

I Martin

Executive Chairman

13 September 2021

Unaudited consolidated income statement for the six months ended 30 June 2021

Unaudited consolidated statement of changes in equity for the six months ended 30 June 2021

Unaudited consolidated statement of financial position at 30 June 2021

Unaudited consolidated statement of financial position at 30 June 2021 (continued)