20 Mar 2007 07:00
BRADY PLCFINAL RESULTSFor Release 20 March 2007
Brady plc ('the Group'), the leading supplier of software solutions for global commodity trading, announces its results for the twelve months to 31 December 2006.
HIGHLIGHTSTrading performance:
Turnover up 91% to ‚£4,635,865 (2005: ‚£2,431,609)
Profit before tax ‚£805,239 (2005 restated: loss before tax ‚£1,080,646)
Cash inflow from operations was ‚£865,698(2005: outflow of ‚£678,930)
Cash balance ‚£4,917,000 (2005: ‚£3,604,744)
Maiden dividend of 1p per share
Operations
Nine contract wins for Trinity v600 from March 2006 to January 2007
Trading products are now used on six continents
Outlook
Group has announced its intention to expand international sales and service operations
Group is in active discussions with further prospective customers
Graham Simister, Chairman of Brady, said:
Brady plc made pretax profit in 2006 and signed sufficient contracts in the year for the Board to be optimistic for the outcome in 2007. The Group signed up a number of very well known new clients in 2006 and hopes to do so again in 2007. The Group is experiencing strong market 'pull' into international service operations, and on 10 January 2007 appointed Peter Harverson as non-executive director and consultant to the Group, with a specific remit to assist the planning, execution and control of the growth of the Group's international sales and distribution operations. This is the first step in a process of strengthening the Board to further the Group's continuing development. I believe our recommendation of commencement of dividends reflects our confidence in our short and medium term future.
Copies of the annual report and accounts will be posted to the shareholders shortly and will be available on the company's website www.bradyplc.com
For further information please contact:
Graham Simister, Chairman 01223 479479Robert Brady, CEO 01223 479479END
FINAL RESULTS FOR THE 12 MONTHS TO 31 DECEMBER 2006
CHAIRMAN'S STATEMENT
Brady plc made pretax profit of ‚£805,239 in 2006 (2005: pretax loss ‚£1,080,646) and signed sufficient contracts in the year for the Board to be optimistic for the outcome in 2007. Further information regarding the value of contracts signed in 2006 and of maintenance and other revenue which supports the Board's expectations are detailed elsewhere in this report. The number and timing of 2007 contract closings and implementation and revenue recognition schedules are inherently difficult to forecast but with the current level of signed contracts the Board is now focussing on laying the foundations to underpin growth in 2007 and 2008.
In 2005 delays were experienced in the release of the current version of the Trinity system and this was reflected in a loss that year, but the new system is now in live operation and the Board does not anticipate similar issues to be experienced in the foreseeable future. Cash balances rose from ‚£3,604,744 at the 2005 year end to ‚£4,917,000 at the 2006 year end continuing to rise to ‚£ 5,549,767 on 31 January 2007. The Group has already signed further contracts in 2007 as announced in January and is confident that further opportunities will continue to be available for further sales in 2007 and beyond.
The Group continues to focus a broad range of product applications on a specific target market in which many software applications fail to address the specific needs of a highly specialised marketplace. This high value-added approach allows clients to purchase a service from the Group not readily available from other suppliers. The Group continues to develop ever more specialised capabilities by working closely with its clients on projects tailored to their specific needs. By working with many of the top users in this area the Group has been able to substantially improve both its Trinity and Opval products and still generate appropriate retained earnings. The Group's specialist metals trading products are now used on six continents. Having upgraded and implemented new platforms for both Opval and Trinity the Board does not anticipate an imminent need for fundamental redesign of either product, though they will both be continuously improved. The Board has declared a maiden dividend of 1 pence per share as the business is expected to remain cash flow positive for some time. Initially dividends are expected to be on a modest basis as the Group aims to retain sufficient cash to be seen as a stable supplier of what is often a mission-critical system.
Brady plc intends to continue to improve its sales structure, building upon improvements already made. The Group signed up a number of very well known new clients in 2006 and hopes to do so again in 2007. Peter Harverson's recruitment as a non-executive should help to increase this focus on sales both in this role and as a consultant. Dan McEvoy, who was employed in early 2005 met with considerable sales success in 2006, by far our best year ever for new clients; he was appointed head of sales during the year. We plan to further recruit in sales in 2007. This will initially raise our fixed costs, but we believe it is firmly in the shareholders' interests to do so.
The Board also believes that it should further strengthen its finance and general management structure. We anticipate the appointment of a new FD shortly to implement this structure. Recruiting new management with experience in businesses substantially larger than Brady's will allow room for the Group to grow in scale rather more quickly than with the current structure and we intend to work towards appointing additional senior directors to this end. David Rowe will retire as a non-executive director at the end of his three year term at the AGM and I would like to thank him for the exceptional help he has provided us during his term of office; we anticipate appointing another independent non-executive director later in the year.
Brady plc is a well-financed Group with rising numbers of new clients. The Group has begun to take steps to strengthen and deepen its management across the Board and I believe this gives us the possibility of substantial growth in the future. Software is an inherently difficult business in which to predict future sales and there are always risks of delays and technology change but I believe our recommendation of commencement of dividends reflects our confidence in our short and medium term future.
Graham SimisterChairman20 March 2007 CHIEF EXECUTIVE'S REVIEWOPERATIONAL REVIEW
Brady plc's mission is to become the leader in the field of metal and commodity trading solutions. This Operational Review is addressed to customers and shareholders alike. It is the annual opportunity to review our performance against key objectives for the year, and to set out our strategy going forward.
Although this review is for 2006, it must begin with the issues the Group faced in the previous year. In 2005 the Group launched the next major version of its flagship product, Trinity version 600. This version provides enhanced functionality and security for the Group's banking and trading customers. It was designed for quicker on-site implementations, which our research showed was a key customer demand. And in addition, the new product expanded the Group's target market by meeting the needs of metal and mining companies. The product launch was an important technical foundation for our success in 2006. It is now receiving excellent reviews and recommendations from customers.
In 2006 the Group enjoyed a record year for sales and order fulfilment. The Group achieved new contract wins for its Trinity product of over ‚£3 million. In line with our objective of faster implementation, three of the new customers reached the stage of product acceptance during the year. The other projects began later in the year and are currently running to time. During the year the Group also received and delivered three orders for the Opval product for traders and hedge funds.
Performance
The key performance indicators used by the Board to monitor the financial performance of the Group include sales bookings, turnover, operating profit and cash generation. These are closely monitored throughout the year.
Group turnover increased by 91% to ‚£4,635,865 (2005: ‚£2,431,609).
The operating profit for the year was ‚£636,202 (2005: loss of ‚£1,272,822), This was after charging ‚£91,417 (2005: ‚£45,600) arising from the adoption of FRS 20 (Share based payments) as set out in Note 18.
Group cash inflow from operations was ‚£865,698 (2005: outflow of ‚£678,930).
Turnover in 2006 included ‚£300,000 in license revenues relating to six Opval clients and ‚£1.5m relating to eight Trinity clients. The majority of the revenue from contracts signed in 2006 is due to be recognised in 2007. Average initial contract size was approximately ‚£80,000 for Opval license agreements and ‚£400,000 for Trinity sales. This does not include implementation and development revenues. The Group is focussing sales efforts on Trinity and Opval sales, primarily to impact 2008 and on further work with existing clients. Maintenance revenues, which typically recur year on year from completion of installation amounted to approximately ‚£1.3 million in 2006, and as a result of the additional licences agreed in the year, the aggregate annual value of maintenance income from signed licences as at 31 December 2006 amounted to approximately ‚£1.7 million. The balance of the Group's sales revenue mostly relates to professional services and development. Timing of license sales are less predictable than other forms of revenue.
The improvement in financial indicators outlined above reflects the successful delivery of Trinity version 600, and the increased flow of orders.
In addition, the Group monitors a number of non-financial performance indicators as set out below, to ensure that the international growth path set out below remains under control and meets customer expectations.
Ease of Implementation
Whilst the Group's conventional banking customers typically require integration with in-house systems, our producer, fabricator and trading-house customers typically have fewer requirements in this area. Our market research shows that they place a high premium on speed and ease of implementation. Accordingly, the Group has targeted, as a key performance indicator, the average number of days required from Brady personnel for a new customer in this sector to achieve practical acceptance for first go-live. In 2006, this fell significantly and the Group aims to reduce this further in 2007 and beyond. This will enable the Group to achieve greater customer satisfaction, and to expand its market to satisfy a broader range of customers.
Geographical distribution of customers (by time zone)
Although many of the Group's implementations are global in nature, with users throughout the world connecting to the central system, the centre of activity and hence central support requirement is usually at the customer head office. This indicator is an important measure of the improvement in international sales and services cover. In 2006 there was a greater density of customers in USA compared to 2005, other territories are set for expansion in 2007.
OUTLOOK
The Group announced on 11 January 2007 that current market expectations for 2007 are underpinned by existing orders. The prospect pipeline remains good.
The first challenge facing the Group in 2007 will be to expand its international sales operations. Work has already begun. In early 2007 the company appointed Peter Harverson to the Board, with a specific remit to assist the planning, execution and control of the growth of the Group's sales operations under the head of sales, Dan McEvoy. This investment is expected to yield results in 2008 due to the long sales cycle.
The next challenge will be the Group's geographical footprint for services. The Group's sales successes show an important pattern. Previously, the practical focus of operations centred on the London Metal Exchange - although trading was global, most customers were serviced in London. With the launch of Trinity version 600, the Group acquired key international metal and mining customers, as well as precious metal customers headquartered in New York and Japan. This trend continues: for example, the four contract wins announced in January 2007 were headquartered in the US, Japan, Switzerland and Asia. There is a corresponding customer demand or 'pull' into international services operations. In the immediate term this demand is being met by working with major metal and mining consultancies and through travel; in the longer term the Group will respond to the market pull by providing local services. In order to seize this major opportunity, we must become an international sales and service organisation, with knowledge-based services tightly focused in Cambridge.
Robert BradyChief Executive20 March 2007 CONSOLIDATED PROFIT & LOSS ACCOUNTFor the year ended 31 December 2006 Restated Note 2006 2005 ‚£ ‚£ Turnover 3 4,635,865 2,431,609 Cost of sales 1,894,111 1,645,059 Gross profit 2,741,754 786,550 Administrative expenses 2,105,552 2,059,372 Operating profit/(loss) 636,202 (1,272,822) Interest receivable and similar income 169,037 192,176 Profit/(loss) on ordinary activities before taxation 805,239 (1,080,646) Taxation on profit/(loss) on ordinary activities 4 180,280 (332,412)
Retained profit/(loss) for the year 624,959 (748,234)
Earnings/(loss) per ordinary share Basic 5 2.4p (2.9)p Diluted 5 2.4p (2.9)p CONSOLIDATED BALANCE SHEETAt 31 December 2006 Restated 2006 2005 ‚£ ‚£ ‚£ ‚£ Fixed assets Intangible assets 811,606 939,248 Tangible assets 138,860 109,237 Investments 15,027 15,027 965,493 1,063,512 Current assets Debtors 2,400,886 1,289,842 Cash at bank and in hand 4,917,000 3,604,744 7,317,886 4,894,586 Creditors: amounts falling due (746,767) within one year (2,298,934) Net current assets 5,018,952 4,147,819 Total assets less current liabilities 5,984,445 5,211,331 Provisions for liabilities - (3,262) 5,984,445 5,208,069 Capital and reserves Called up share capital 262,090 259,692 Share premium account 3,119,500 3,061,898 Merger reserve 680,000 680,000 Capital reserve 1,000 1,000 Equity reserve 161,019 69,602 Profit and loss account 1,760,836 1,135,877 Shareholders' funds 5,984,445 5,208,069 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2006 Note 2006 2005 ‚£ ‚£ Net cash inflow/(outflow) from operating activities 6 865,698 (678,930) Returns on investments and servicing of finance Interest received 169,037 192,176 Net cash inflow from returns on investments and servicing of finance 169,037 192,176 Taxation 327,321 (391,221) Capital expenditure and financial investment Purchase of tangible fixed assets (109,800) (62,081) Net cash outflow from capital expenditure and financial investment (109,800) (62,081) Acquisitions Acquisition of business - (47,512) Financing Issue of ordinary share capital 60,000 41,750 Net cash inflow from financing 60,000 41,750
Increase/(decrease) in cash 7 1,312,256 (945,818) BASIS OF PREPARATION
1. The financial information set out above in respect of 31 December 2006 does not constitute statutory accounts as defined in section 240 of the Companies Act. The financial information contained in this announcement has been extracted from the 2006 financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985.
The preliminary announcement has been prepared in accordance with applicable accounting standards and under the historical cost convention.
The principal accounting policies of the Group are set out in the 2005 annual report and financial statements. The policies in this preliminary announcement have remained unchanged from the 2005 financial statements, with the exception of the policy relating to the treatment of share based payments which has been changed in accordance with the provisions of FRS 20 as set out in note 2 below.
2. PRIOR YEAR ADJUSTMENT
During the period, the Group adopted FRS 20. Under the new standard, share options are expensed during the vesting period, and this has resulted in a restatement of comparative figures. The implementation of FRS 20 has the effect of reducing profits for the year to 31 December 2006 by ‚£91,417. The equivalent charge for the year to 31 December 2005 is ‚£45,600. In addition, retained earnings have been reduced by ‚£24,002 in respect of periods falling before 1 January 2005.
3. Turnover and profit/(loss) on ordinary activities before taxation
Turnover and profit/(loss) before taxation are attributable to the one principal activity of the Group.
The Group makes sales to a variety of world destinations. An analysis of turnover by geographical market is given below:
2006 2005 ‚£ ‚£ United Kingdom 2,258,869 1,564,982 Switzerland 445,926 - Italy 13,261 32,248 Rest of Europe 28,283 136,126 North America 1,762,527 545,993 Asia 62,592 85,032 Australia 51,383 67,228 Rest of World 13,024 - 4,635,865 2,431,609
4. Taxation on profit/(loss) on ordinary activities
The taxation charge/(credit) represents:
2006 Restated 2005 ‚£ ‚£ Corporation tax at 30% (2005: 30%) 310,314 (260,471) Adjustments in respect of prior periods (126,772) (50,203) Total current tax 183,542 (310,674) Deferred taxation: Reversal of timing differences (3,262) (21,738)
Taxation on profit/(loss) on ordinary activities 180,280 (332,412)
The current tax assessed for the year is lower (2005: lower) than the standardrate of corporation tax in the UK of 30% (2005: 30%). The differences areexplained as follows: 2006 Restated 2005 ‚£ ‚£
Profit/(loss) on ordinary activities before taxation 805,239 (1,080,646)
Profit/(loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2005: 30%) 241,572 (324,194) Effect of: Expenses not deductible for tax purposes 70,522 52,619 Differences between capital allowances and depreciation 3,262 10,839 Other timing differences - 265 Utilisation of tax losses (5,042) -
Adjustments to tax charge in respect of prior periods (126,772) (50,203)
Current tax charge/(credit) for period 183,542 (310,674) 5. earnings/(loss) per share
The calculation of the basic earnings/(loss) per share is based on the earnings /(loss) attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
The calculation of diluted earnings/(loss) per share is based on the basic earnings/(loss) per share adjusted to allow for the issue of shares on the assumed conversion of dilutive options. For both basic and adjusted loss per share in the prior year, the potential ordinary shares are not treated as dilutive as, under FRS 22, the loss per share is increased.
Reconciliation of the earnings/(loss) and weighted average number of shares used in the calculations are set out below.
Restated 2006 2005 ‚£ ‚£ Basic and diluted earnings/(loss) per share Profit/(loss) for the financial year 624,959 (748,234) Number Number Weighted average number of ordinary shares in issue during the year 26,054,202 25,870,841 Basic earnings/(loss) per share (pence) 2.4 (2.9) Diluted earnings/(loss) per share (pence) 2.4 (2.9) 2006 2005 Number Number Reconciliation of average number of ordinary shares used for basic and diluted earnings/(loss) per share Weighted average number of ordinary shares used for basic earnings/(loss) per share 26,054,202 25,870,841 Weighted average number of shares under option - 1,313,222 Weighted average number of ordinary shares used for diluted earnings/(loss) per share 26,054,202 27,184,063
Adjusted basic earnings/(loss) per share and adjusted diluted earnings/(loss) per share are based on the earnings/(loss) attributable to ordinary shareholders adjusted for goodwill amortisation. Reconciliation of the earnings/(loss) used in the calculations is set out below.
Restated 2006 2005 ‚£ ‚£ Adjusted earnings/(loss) per share Operating profit/(loss) 636,202 (1,272,822) Goodwill amortisation 127,642 116,118 Adjusted operating profit/(loss) 763,844 (1,156,704) Net interest 169,037 192,176 Adjusted profit/(loss) on ordinary activities before taxation 932,881 (964,528) Taxation on adjusted profit/(loss) on ordinary activities (180,280) 332,412
Adjusted profit/(loss) for the financial period 752,601 (632,116)
Adjusted basic earnings/(loss) per share (pence) 2.9 (2.4)
Adjusted diluted earnings/(loss) per share (pence) 2.9 (2.4)
6. Net cash inflow/(OUTFLOW) from operating activities
Restated 2006 2005 ‚£ ‚£ Operating profit/(loss) 636,202 (1,272,822) Depreciation 80,177 81,929 Share option charge 91,417 45,600 Amortisation of goodwill 127,642 116,118 (Increase)/decrease in debtors (1,311,593) 458,059 Increase/(decrease) in creditors 1,241,853 (107,814) Net cash inflow/(outflow) from operating activities 865,698 (678,930)
7. Reconciliation of net cash flow to movement in net funds
2006 2005 ‚£ ‚£ Increase/(decrease) in cash in the year 1,312,256 (945,818) Movement in net funds in the year 1,312,256 (945,818) Net funds at 1 January 2006 3,604,744 4,550,562 Net funds at 31 December 2006 4,917,000 3,604,744 REPORT AND ACCOUNTS
Copies of the annual report and accounts will be posted to the shareholders shortly and will be available on the company's website www.bradyplc.com
For further information please contact:
Graham Simister, Chairman 01223 479479
Robert Brady, CEO 01223 479479
BRADY PLC