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

Results for the year ended 31 December 2023

Strong operational delivery in 2023 has resulted in another period of improved financial performance

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 results for the twelve months ended 31 December 2023 ("FY23" and "Period").

Key financials

FY23 financial highlights

·      Total revenue up 7.1% driven by recurring revenue growth of 8.7%.

·      Pre-tax profits increased by 60% as margins normalised.

·      Profit after tax improved by 14.5% as the Group became tax paying.

·      Earnings per share, enhanced by the share buyback programme, rose 16% to 7.63p.

·      Robust cash position maintained with year-end cash of £3.0m (FY22: £3.4m) equivalent to 36.6p per share (FY22: 41.0p per share)

·      Return of surplus cash to shareholders by way of dividend and purchasing 275,000 Ordinary Shares via share buybacks.

·      Final dividend of 1.5p per share recommended (FY22: nil), bringing total dividends for the period to 2.5p per share for FY23 (FY22: nil).

Outlook and strategic progress

·      The Board's expectation for 2024 remains unchanged. 2024 has started to plan and if it continues sets up another year of:

o  growth in revenue;

o  recurring revenue growth outpacing total revenue growth;

o  margins at a healthy level;

o  cash to be generated by the operations;

o  investment in future growth prospects;

o  preservation of a solid balance sheet; and

o  progressive dividend to shareholders.

·      The Board aim to build upon the foundations of another successful year to create a meaningful overseas business. Overseas revenue accounted for 9.8% of total revenue in FY23 (FY22: 1.3%).

·      Certified Cyber Essentials Plus has been achieved and we are working towards ISO 27001.

·      The breakthrough in artificial intelligence ("AI") means we are fast approaching another time of transition. The Company is working to position its future solutions to embrace this change and take advantage of what AI presents in improving our solutions and our productivity.

·      Cross selling product sets to existing customers across the company.

Ian Martin, Chairman of Touchstar commented: "2023 has resulted in another period of improved financial performance. To build on this progress we remain committed to providing the best customer service we can to our customers, investing into our products, services and platforms and continue to work to gain operational efficiency, aligning our cost structure with our revenue growth."

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

CHAIRMANS STATEMENT

The progress that Touchstar has made in the last few years ensures that the business continues to evolve with a clear strategy to drive organic growth and enhance our long-term market position. Strong operational delivery in 2023 has resulted in another period of improved financial performance. To build on this progress we remain committed to three things that run through the whole business. First, we will maintain the best customer service we can to our customers. Second, we will invest into our products, services and platforms to keep Touchstar relevant into the future. Finally, we will continue to work to gain operational efficiency, aligning our cost structure with our revenue growth.

Capital Management - Dividend and Share Buybacks

The Board recommends a final ordinary dividend of 1.5p per share (FY22: nil). Together with the interim dividend of 1.0p (FY22: nil) paid in December 2023, this makes a total ordinary dividend for the year of 2.5p (FY22: nil).  This is covered just over three times by underlying basic earnings per share and our aim is to increase the dividend in line with growth in earnings per share.

Subject to the approval of shareholders at the Annual General Meeting, the final ordinary dividend of 1.5p per share will be paid on 19 July 2024 to shareholders on the register on 21 June 2024. The ex-dividend date will be 20 June 2024.

The Company intends to continue purchasing its own shares. The Company has again budgeted for up to £300,000 for share buybacks in 2024 although the exact level will be dependent upon availability of shares and the price. The maximum price payable must not exceed 105% of the average of the closing middle market price per ordinary share for the previous five days.

The Board

 As previously reported, I have informed the board of my wish to stand down as a director and chairman of the Company during 2024. Progress has been made to identify and recruit the right person to lead the next stage of development of the Company and to ensure a seamless transition.

People

It is the people within the business that are central in the progress we continue to make, and I would like to thank them not just for their contribution this year but throughout my time as Chairman. It has been a pleasure and a privilege.

Looking Ahead

2023 was not a straightforward year and in some ways that makes it even more satisfying that we achieved the objectives we set ourselves. It gives us more confidence that the plans we have put in place will deliver in the future. Our strategy has clarity, we are in robust financial health, have good market positioning providing an opportunity for long term growth.

Business review

The Group's operations remain focused on the logistics, transport distribution and secure access control markets.  2023 saw healthy activity levels in the business areas we operate in. This was largely due to customer adoption of the latest technologies and a consolidated push into cross selling between customers of all the products we supply.   The fact that we offer a complete package within our areas means we can provide cost effective solutions whilst maintaining our margins.

We had some marked successes in our strategic plans.  Sales outside of the UK showed a marked improvement over 2022.  Sales in this market achieved just over £712,000, 9.8% of turnover (FY22: £89,000, 1.3% of turnover) and was all associated with the Proof of Delivery solutions we supply.   The sales were a mix of new and existing customers.  We have a number of export opportunities in 2024 too.

2023 also saw the start of our planned expansion in the Access Control world.  The marketing and supplying of fire alarm systems, and increased activity in promoting CCTV systems, helped to secure a large £250,000 installation of a CCTV system in the period at an existing client's factory.    We continue to build on accessing Government department requirements and have recently signed up to a government backed portal that provides access to tenders within the national and local government.  

For several years, Touchstar has adopted AI in its effort to increase capability and efficiency.  Primarily utilised in the marketing department for content creation and blogging, we are now seeing AI evolving with big improvements in machine learning to provide a positive contribution to speedier product development.  Whilst AI is not fool proof and can still produce challenges, it is envisaged productivity will be increased as it upskills our developers.    The Microsoft engine we are adopting will allow us to maintain our IPR and operates within the cyber security of 27001 certification, as it utilises the Azure platform security policies.  Post the period end, Touchstar independently gained full Cyber Essentials plus certification, something demanded by customers and imperative for a software organisation.

Financial results

Touchstar delivered a solid set of results in 2023. It was a year in which the business continued to make progress despite a benign economic background.  Further improvement was made in financial performance highlighting the resilience of the business model our strategy has developed.

Revenue increased 7.1% to £7,224,000 (FY22: £6,743,000). Growth was driven by new customers gains and upgrading by the existing customer base. The larger petrochemical distribution installations were predominately weighted in the first half of 2023, a change from the prior year.

Growth in recurring revenue, as expected, outpaced the overall rate of growth in total sales.  For 2023 recurring revenue represented 40.4% of total sales (FY22: 39.8%). The business strategy is to continue to build the level of recurring revenues in both absolute terms and in relation to total sales.

Gross margins regularised in the second half of 2023 as the distorting effects of the low margin sale previously reported in H1 23, which flattered revenue in H1 23 but reduced overall margin, worked through the financials. It is pleasing to report that, as expected, gross margins returned to a trend of underlying improvement, rising to 63.6% in H2 23 ( H2 22 : 63.3%).

A tight control was kept on overheads as the business realised productivity improvement and managed higher revenues from a lower expense base.

Profitability accelerated in the second half of 2023 as margins regularised and expenses were controlled, allowing revenue growth to flow to the bottom line. Pre-tax profits rose by 60% to £675,000 (FY22: £422,000).

After a long period of receiving the benefits of tax credits, Touchstar became a tax paying entity in 2023. A tax charge of £36,000 (FY22: tax credit £136,000) resulted in a more modest rise in FY23 post-tax profits of 14.5% to £639,000 (FY22: £558,000).

Earnings per share rose by 16.0% to 7.63p in FY23 (FY22: 6.58p) driven by principally by improved profitability and further enhanced by the positive effects of our share buyback programme. The Company bought back a total of 275,000 shares in 2023 (FY22: nil) at a total cost of £252,000 (average cost per share of 91p). The total number of shares with voting rights was therefore reduced to 8,200,277(FY22: 8,475,277)

EBITDA remained stable in 2023 at £1,336,000 (FY22: £1,334,000) as the increase in operating profit of £161,000 was negated by the decrease in depreciation and amortisation.

Amortisation and depreciation release in 2023 was £737,000, a much lower level than the £896,000 in 2022 as historical high CAPEX spend in 2018 on subcontracted services and in the ERP system has all been fully depreciated. CAPEX spending on R & D is expected to increase again but not to return to FY 18 levels.

The balance sheet remains strong. Cash and cash per share at year end was lower than the prior year due to three reasons. First, in 2023 the Company spent £334,000(FY22: nil) to enhance shareholder value  through share buybacks costing £252,000 and a dividend paid costing £82,000. Secondly, a delayed customer go-live date deferred until 2024 and therefore delay in recognising recurring revenue, and thirdly some customer payments received in early January 2024 rather than December 2023.

The order book, which we now report inclusive of recurring revenues due in the forthcoming year, stood at £3,611,000 at the year end (FY22: £4,441,000) . This is made up of contracted recurring revenue due of £2,917,000 (FY22: £2,823,000) and new orders of £694,000 (FY22: £1,618,000). We have noticed that customers have returned to more of a "just in time" behaviour rather than a more aggressive order placement strategy seen in the period of heightened supply chain concerns.

Current trading and outlook

The Board's expectation for 2024 remains unchanged. The year has started to plan and if it continues, 2024 should be another year of:

o  growth in revenue;

o  recurring revenue growth outpacing total revenue growth;

o  margins at a healthy level;

o  project sales to be second half weighted;

o  cash to be generated by the operations;

o  investment in future growth prospects;

o  preservation of a solid balance sheet; and

o  progressive dividend to shareholders.

In addition, the Board aims to continue to build its overseas business.  Overseas revenue accounted for 9.8% of total revenue in FY23 (FY22: 1.3%).

Our strong financial position continues to support our organic growth plans. We will maintain the discipline that has delivered profitable growth and good capital returns to date. We remain confident in the future prospects of the Group.

I Martin

Chairman

16 April 2024

CEO STRATEGIC REVIEW

Turnover & profitability

A year-on-year steady improvement in sales & profitability. This bodes well for the future of the business, with more profitable revenue streams replacing lesser margin revenue types.

The business sales turnover grew at 7.1% over 2022.  Cash generation also continues to remain healthy with the Group's year-end cash position a little over £3.0 million, after paying a dividend in the year and transacting share buy backs.  The business made £675,000 profit before tax, a 60% increase over the 2022 pre-tax profit of £422,000. EBITDA remained at a similar level to 2022, largely due to movement in depreciation and amortisation. 

Turnover, EBITDA & PBT

(* continuing operations)

Recurring revenue

Recurring revenue is now the valuable asset we all envisaged, following our strategic review in 2018.  2023 saw total recurring revenue increase by an additional 9% a continuing and positive trend. This success is making a positive impact into the performance and underlying value of the business. In 2023, the Group's recurring revenue equated to 40% of turnover.

Group recurring revenue

Whilst the Group enjoyed an increase of 8.7% in total recurring revenue over the previous year, the predominant impact in growth of this type of profitable revenue continues to be in the form of software licences, a key strategic objective.  Importantly, it is positive that both forms of revenue remain steady and growing healthily - the embodiment of a total managed serviced offering.

Group recurring revenue

Software development and configuration services

As we embrace in house IPR owned solutions, the product evolves as we add more customers. This allows us to control our own direction and develop the product and modules to be a more powerful product set for the marketplace. The move to in house development has allowed us to continue increasing the sales of bespoke software development and support services, 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

The combination of the increases in recurring and the above software development revenues continues to provide a healthy gross margin for the Company, of 59.3% % of Group turnover in FY23 up from a little over 51% five years ago.

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

As our stock is openly traded on the London Stock Exchange, and enhancing shareholder value is a key element within the Company's strategy.  EPS increased to 7.63 pence, up from 6.58 pence in FY22, a continued positive trend from five years ago when the EPS was in a negative position.

This increasing valuation of the businesses KPIs, has allowed the Touchstar share price to continue to outperform its peers on the London Stock Exchange (AIM). The share price movement during the trading year of FY23 increased a modest 9% up again from the 13% gain in the previous year. The price at the end of the year settled at 92.5 pence a share having peaked at over £1.10 during the year.

Consolidated income statement for the year ended 31 December 2023

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

The exercise price of all share options granted at 31 December 2023 were below the average market share of ordinary shares during the period to 31 December 2023 and therefore deemed dilutive. During 2022 the exercise price was higher than the average market share price and therefore deemed to be anti-dilutive (n/a).

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 2023 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 2023