Brady Regulatory News (BRY)

9 September 2013

Brady PLC

("Brady", the "Company" or the "Group")

INTERIM RESULTS

For the six months to 30 June 2013

Brady, the leading global provider of trading and risk management solutions for metals, recycling, energy and soft commodities, announces its interim results for the six months to 30 June 2013.

Operational Highlights:

· Overall, high quality new business signed in the first half of the year, but at a slower pace than anticipated;

· Six significant new licence deals signed in the first half of the year and seven in the year to date;

· Progress in the Brady Energy business unit after substantial reorganisation in 2012, with two significant new licence deals signed (as rentals) as well as two significant service deals, all contributing to further build ongoing recurring revenues;

· Four new clients using the Brady Cloud solution;

· A total of 14 new client installations and go-lives throughout Europe, the Americas and Asia, with four clients going live in Asia, a key growth area;

· Initiated cost reduction programme in July which will result in annualised cost savings of £2.2 million which will start to accrue in the second half of the year; and

· Strong pipeline with advanced discussions in relation to several significant new licence deals.

Financial Highlights:

· Revenue up 23% to £14.9 million (H1 2012: £12.1 million);

· Underlying revenue growth of 8% for the first half of 2013 compared to the first half of 2012 (excluding the Brady Energy business unit, which was subject to substantial reorganisation in 2012);

· Recurring revenues up 27% to £8.5 million (H1 2012: £6.7 million) now comprising 57% of total revenue (H1 2012: 55%);

· EBITDA before exceptional items down 24% to £1.3 million (H1 2012: £1.8 million);

· Adjusted earnings per share down 52% to 0.91p per share (H1 2012: 1.88p per share); and

· Strong operating cash generation with £5.7 million of cash at 30 June 2013 (equivalent to 7p per share) and no debt.

Financial Summary:

1 Adjusted earnings per share, as calculated by external analysts, is based on the profit after tax adjusted for acquired intangible assets amortisation, share based compensation, exceptional items and normalised tax (which has been assumed at a constant 10% tax rate)

2 Excluding exceptional items in 2012

Paul Fullagar, Chairman of Brady plc, commented:

"The Group has continued to grow revenue and signed a number of significant new licence and service deals in the first half of the year in what have been very challenging commodity markets. Business has been signed at a slower pace than anticipated with an impact on the results for the first half year and the 2013 outlook. Although markets remain tough, I am pleased that the Group has a growing pipeline and is in advanced negotiations in relation to several very significant new contracts, the revenue from which is expected to flow in 2014 and beyond. The Group's major focus is to secure these and other deals in the second half and to continue the momentum in the Brady Energy business following its reorganisation. I look forward to a busy second half and reporting further new client wins in due course. The increase in recurring revenues to £8.5 million is very positive and the increasing client base provides excellent opportunity to further grow the business. We continue to retain a strong balance sheet position, with a healthy cash balance and no debt."

For further information please contact:

About Brady

Brady plc (BRY.L) is the largest European-headquartered provider of trading and risk management software to the global commodity and energy markets. Brady combines fully integrated and complete solutions supporting the entire commodity trading operation, from capture of financial and physical trading, through risk management, handling of physical operations, back office financials and treasury settlement, for energy, refined, unrefined and scrap metals, soft commodities and agriculturals.

Brady has 25 years' expertise in the commodity markets with some 300 customers worldwide, who depend on Brady's software solutions to deliver vital business transactions across their global operations. Brady clients include many of the world's largest financial institutions, trading companies, miners, refiners and producers, recycling companies, scrap processors, tier one banks and a large number of London Metal Exchange (LME) Category 1 and 2 clearing members and many leading European energy generators, traders and consumers.

For further information visit: www.bradyplc.com

Brady plc: Twitter/Facebook/LinkedIn

CHAIRMAN'S STATEMENT

The first half of 2013 has been and remains a challenging period for our clients and prospective clients in the commodities market. The Group has secured high quality new business in the period, albeit at a slower pace than we anticipated. In addition to market conditions, this is partially due to the scale and complexity of the contracts we are now involved with. The slower pace of business has affected our first half results and full year outlook which is below market expectations. However, Brady is in advanced negotiations in relation to a number of very sizable deals and the focus is to close these in the second half of the year. In addition, in July we have initiated a significant cost reduction programme and are committed to continue to carefully manage our cost base and working capital. I look forward to reporting on progress in these areas.

The Group remains committed to maintaining a strong balance sheet, with net cash of £5.7 million and no debt at 30 June 2013.

Brady Energy

The Brady Energy business has been the subject of reorganisation following the Navita and syseca acquisitions in 2012. We have seen positive early momentum in securing new business in the first half of the year and, with the strengthened sales team in place, I look forward to reporting further progress in due course.

Management Changes

The Group was pleased to welcome Robert de Picciotto and Bob Beveridge to the Board in the first half year. They both bring a wealth of valuable and relevant international experience and will further strengthen the Board. The Company also announces that Tony Ratcliffe, Finance Director, has notified the Board of his intention to leave the Group. Tony has been a great asset to Brady over the last six years in a period of substantial growth. He will remain with the Company until 31 December 2013 and will continue to support the Group over the coming months whilst the search for a successor is completed. This search is well underway. I look forward to announcing the new Finance Director in due course and the Board wishes Tony well in his future endeavours. I would also like to thank all Directors and employees for their hard work and commitment during a very busy first half.

We continue to believe that the fundamentals of the business are strong. The size of the commodities market is compelling and Brady is well positioned to succeed. The growth in revenue in the period has contributed to a five year record of growth with Compound Annual Growth Rate ("CAGR") of revenues of 43% and a five year CAGR of EBITDA of 40%. Of particular importance is the 27% growth in recurring revenue levels, which now comprise 57% of total revenues, reaching the highest levels ever.

Paul Fullagar

Chairman

CHIEF EXECUTIVE'S REVIEW

I am pleased to provide a summary of the operational and financial highlights at Brady in the first half of 2013, together with the outlook for the rest of the year.

Chief Executive's Overview

Brady's growth strategy continues to provide an increasing and wider reaching service to our clients, with the aim of becoming a more strategic supplier and consequently securing a greater share of their overall IT spend. This goal will be achieved both by the Group winning more deals for global solutions across more asset classes and by extending existing clients' use of Brady's solutions and services. Success of this is indicated by our strong compound growth over the last five years. As Brady's scale increases, the Group expects to be able to sign more and larger transactions. We are currently engaged in several very significant potential new licence deals that we expect to close before the end of the year. Given the size and complexity of these transactions, they have inevitably taken longer to negotiate. We anticipate that the associated revenue from these contracts will not be taken in 2013 as expected but will be delayed and taken in 2014 and beyond.

As Brady's brand strengthens we are increasingly able to service clients around the world, as "everybody needs food, energy and metal". This is demonstrated by 14 significant clients going into production using our solutions around the world, including clients operating in Asia, the Americas and Africa.

I am delighted with the increased take-up of our Cloud solution as we extend this delivery offering across the Group's clients. This deployment model delivers exceptional value and speed in being able to provide value for our clients, whilst generating further recurring revenues for Brady.

The Brady Energy team met a number of challenges over the last year but I am now confident that we have responded to these and put the right organisation in place, made the right decisions regarding the go-forward solutions and substantially strengthened the offering to meet the strong drivers in the energy market. We are now executing on the vision with a right-sized organisation.

The integration of Brady Recycling has gone to plan and we can already see the benefit of being the only provider of a solution across the raw material, scrap, refined and derivatives metals markets.

Strategy and Operations

The Group's strategy is to retain and strengthen its position as the largest European software company providing solutions to the global energy, metals, recycling and soft commodity markets. Brady's solutions support the requirements of companies active in the trading, risk management, settlement and logistics markets. Brady's brand continues to strengthen, proven by the Group's ability to sell and deliver complex and high value solutions to some of the very best industry names around the world, including Asia, South America and Africa as well as the more traditional European and North American markets. Brady has maintained and enhanced its position as the number one European headquartered Energy and Commodity Trading and Risk Management ("ECTRM") vendor, the leading provider of trading and risk management solutions to the global metals markets, the number one vendor in the US recycling markets as well as the largest European install base of energy solutions. This has been validated by CommodityPoint, who are independent market analysts.

Group Product and Technology Initiatives

Brady's Cloud Services offering has seen significant uptake this year, with four clients opting for Brady's Cloud offering plus a number of other clients already lined up to adopt this offering, pending their go-lives. Significantly, the Brady Cloud Services offering is also in the process of being extended into the recently created Brady Recycling business unit.

As Brady Cloud Services solutions develop, augmented by the addition of further next generation components, the Group also expects to see Hybrid Cloud play a more substantial role. Hybrid Cloud combines all of the benefits of a dedicated private cloud environment, in terms of control, security and performance, with the elasticity and flexible pricing of a broader cloud ecosystem.

I am delighted to announce three new Service Orientated Architecture ("SOA") services as part of the Group's strategy to utilise coreSOA components that can be efficiently deployed across the Group:

Valuation Services

The Group has delivered a production ready version of the valuation service which provides state-of-the-art revaluations across multiple platforms and asset classes.

Energy Web Services

This has been built with the Brady Web Framework, the latest generation application and provides time series and other energy focused features. These are important features for our Energy clients, providing additional value directly to their customer base.

Reference and Master Data Services

This provides a reusable set of components and services that standardises the way Brady is able to manage reference and master data for both existing products and next generation solutions, thus offering greater efficiency and reliability.

The SOA programme and the benefits that it can deliver are starting to have a wider impact on Brady's solutions, with more teams re-using services. More importantly, by contributing to this programme, Brady is able to leverage the scale of its development team more effectively and is seeing increased momentum in the next generation development.

Business Review

The Group continues to be organised in four business units. I provide a brief business review of each business unit below:

Brady Physicals Business Unit

The Brady Physicals business has continued to deliver strong revenue growth, with 66% growth compared to the first half of 2012. There have been two significant new licence deals signed in the first half, one being a European soft commodity trading house and the other a US based metals trading company. There is a particularly strong and growing pipeline of new opportunities generated from around the world. There has been excellent progress since 2010 in internationalising the offering and the team has been strengthened to reflect the strong demand. This includes establishing a global support and implementation team.

Amongst the client go-lives in the first half of this year, a leading international trading company has deployed Brady's physical trading solution for both its global aluminium business and its cotton business in Singapore. A commodities fund in Singapore went live with a Brady solution to handle its accounting, transaction processing and position reporting and a Hong Kong based metals trading company started using Brady solutions to manage its physical trading and risk requirements for its base metals business.

The Brady Physicals solution has been further enhanced by the re-use of market data collection and curve building, which were both developed as SOA components elsewhere in the Group. Major developments include a metals warehouse management system as well as a bale level management system for use in the cotton industry.

Brady Metals Business Unit

The Brady Metals business continues to demonstrate its world leadership in risk and derivatives and has secured new business with some of the best names in the industry, adding the world's largest aluminium producer to a client base that already includes the world's largest copper producer and the world's largest commodity trading company. 

The new Brady Trading and Risk Solution provides a cross commodity position and risk system based on the aggregation of data from multiple trade sources and uses the latest web technology. The solution has now been launched following collaboration and a validation programme with one of the world's leading commodity companies.

As the market continues to go electronic, Brady Metals has further automated the electronic feeds from brokers into the solution and has also built a high performance, high volume margin engine, which has already been supplied to one of the world's largest brokers.

Brady Metals achieved five significant client go-lives in the first half of the year, including clients in China, South America, Switzerland and Poland.

Brady Recycling Business Unit

Brady Recycling (formerly Systems Alternatives International LLC, or "SAI") was acquired in November 2012. The integration of this company has been very smooth with all capitalising on the enlarged Group's complementary offerings in order to leverage new cross-selling opportunities in both Brady Metals and Brady Recycling. Brady is the only company in the world to offer solutions for the entire metals value chain, encompassing raw materials, scrap, refined, physical as well as derivatives, across both the ferrous and non-ferrous markets. Brady Recycling is in the process of strengthening sales. There is excellent collaboration across sales, product management and product development between Brady Recycling and the rest of the Brady Group. This is reflected in further new business signed in the first half of the year and the development of a new hosted solution and a hedging solution for the scrap market. Brady Recycling has implemented software at 43 new recycling sites in the first half of the year.

Brady Energy Business Unit

The Brady Energy reorganisation has been finalised with complete integration of the product offering and organisation. Our focus has been placed on strengthening the commercial aspects of the business. This includes further expansion of the sales and account management teams, redefining target markets, clarifying marketing messages and ensuring that all solution offerings are clearly aligned with the market drivers. We are focused on targeting further European expansion as markets de-regulate, for example Turkey, whilst also extending our more comprehensive solution into our existing clients.

Brady Energy signed two significant new licence deals in the first half of the year, one with a major German state owned utility and the other with a Scandinavian trading company. Both of these deals were signed as rental deals, thus further enhancing future recurring revenues. Brady Energy also signed an important deal with one of the largest Scandinavian power producers which leverages Brady's web technology. We also signed two substantial service deals, providing ongoing revenues, one of which is a national European energy provider.

There have also been a number of significant client go-lives in the first half of the year, for example with a clean energy trading client in Italy, a world leading gas aggregation company in Africa and a European national transmission system operator.

Brady Energy's pan-European scheduling and nomination solution has been further strengthened to include gas in addition to the electricity functionality, reflecting the business need derived from Europe's shift towards gas-based and away from nuclear-based power production.

New Contracts

The Group has signed six significant new licence contracts in the first half of the year, with a further significant licence contract signed since 30 June 2013. These deals were distributed across the energy, metals, recycling and soft commodity sectors, demonstrating the value of Brady having a wider portfolio of solutions. The Group has been able to secure higher priced terms by having an expanded offering and a stronger market presence. The solutions that the Group has acquired are clearly benefiting from the Group's stronger distribution capabilities and global footprint.

Brief details of the significant new licence deals are:

Rusal, the world's largest aluminium producer and one of the world's major producers of alumina, which opted for Brady to manage its hedging book and risk management requirements for its aluminium sales;

HSBC, a leading international investment bank selected Brady to support its risk management activities for its LME trading operations;

Royce Corporation, a US-based international trading company headquartered in Miami, Florida, specialising in trading ferrous, non-ferrous metals and plastics selected Brady to handle its trading, risk management and logistics processes;

Agrifert, a Swiss-based soft commodities trading company, licensed Brady's trading and risk management solution to handle its global soft commodities trading and risk requirements;

Stadtwerke München, Munich's municipal utilities company and one of the largest energy and infrastructure companies in Germany, selected the Brady Power Scheduling solution to manage its power scheduling activities in the UK;

Markedskraft, a major market participant in the Nordic energy market, delivering an extensive suite of services to players in the Nordic and European wholesale markets, including market analysis, financial portfolio management as well as physical handling and settlement selected Brady Energy's Energy Data Management solution to cover their total physical power trading operations.

Since 30 June 2013, Brady has signed one further significant licence deal:

Elysium, a globally active commodities trading company which uses Brady to manage its trading and risk activities.

These contracts continue to demonstrate the Group's ability to provide complex solutions across the range of commodity asset classes, spanning multiple geographic regions and its ability to identify and deliver new business to both new and existing clients. This includes cross selling opportunities as well as extending the benefits of Brady's cloud offering. With a customer base that now exceeds 300, including many of the world's largest financial institutions, producers, trading companies, energy generators, scrap processors and mining corporations, we believe there is strong potential for deeper penetration into existing client accounts, further cross-selling and growth from new clients.

Market

Brady's revenues are not directly correlated to commodity and energy prices. Whilst many of the underlying prices have generally fallen, this creates opportunities for traders and energy and commodity consumers. The Group believes that the general rebound in the global economy has yet to be reflected in increased demand for commodities and energy. We have observed a stronger recovery in the USA, which we believe is further advanced in its economic rebound than Europe and the Group remains optimistic that Europe should follow and that Brady will continue to see significant attractive opportunities in its expanding Asian business. The Group also recognises ongoing opportunities as a result of the further deregulation of the European energy market. 

Brady believes that the ECTRM market remains a large and growing market, offering the Group significant potential for further growth.

Financial Results

Group Revenues

Headline revenues for the first half of 2013 were £14.9 million, an increase of 23% on the £12.1 million for the first half of 2012. Of the total revenues, £8.5 million (57% of total revenue) was recurring revenue, an increase of 27% on the £6.7 million (55% of total revenue) for the same period in 2012. The Group remains committed to maintaining its focus on maximising recurring revenues, which comprises support and maintenance, rental fees and hosting fees. A further £4.3 million (29% of total revenue) was for professional services and development revenues, an increase of 24% on the £3.5 million for the same period in 2012. Finally, a further £2.1 million (14% of total revenue) was generated by licence sales, an increase of 7% on the £1.9 million (16% of total revenue) for the same period in 2012. It has been positive to see solid new deal-flow in the first half of the year. Two of the six significant new licence deals were sold as rental deals rather than up-front licence deals, which are therefore expected to benefit the Group's increasing recurring revenues over many years, rather than adding to licence revenue in the short-term.

Excluding the Brady Energy business unit, which was subject to substantial reorganisation in 2012, there was underlying revenue growth on a like-for-like basis of 8% for the first half of 2013 compared to the same period in 2012 across the other business units.

Group Margin

The gross margin for the first half of 2013 increased to 63% compared to 58% for the first half of 2012.

Research and development expenditure represented 24% of the Group's revenues in the first half of 2013 compares to 22% in the first half of 2012, the increase following the acquisitions in 2012 and the overall level in line with the Group's commitment to ensuring that its product offering is maintained current and up-to-date. 

The Group's aggregate cost base (cost of sales plus selling and administrative expenses) has increased to £15.0 million compared to £11.4 million before exceptional items for the first half of 2012. This increase is entirely due to the effect of including the cost base of the Navita, syseca and SAI acquisitions, which were acquired during 2012, for the full first half of 2013. The Board continues to tightly manage the Group's cost base. Cost reduction initiatives put in place over the summer will have the benefit of reducing annual expenses by approximately £2.2 million per annum, with the savings anticipated to start to be realised in the third quarter of 2013. None of these savings have impacted the first half of the year and exceptional reorganisation costs of approximately £0.5 million are expected to be incurred in the second half of the year. Recruitment has been and will continue to be focussed towards revenue generating roles, with overall tight controls being maintained over headcount costs, which represent the vast proportion of the Group's total expense base.

The EBITDA before exceptional items for the first half of 2013 was £1.3 million compared to £1.8 million before exceptional items for the first half of 2012, a decrease of 24%. The EBITDA margin for the first half of 2013 was 9% compared to 15% for the first half of 2012. It should be noted that the Energy business unit signed new significant new licence business as rental deals, rather than as licence deals in the first half of 2012.

The loss before taxation for the first half of 2013 was £0.1 million compared to a profit before taxation of £0.8 million prior to exceptional items for the first half of 2012. The loss after taxation for the first half of 2013 was £0.1 million, compared to a profit of £0.9 million prior to exceptional items for the first half of 2012.

Adjusted earnings per share for the first half of 2013 prior to the exceptional items were 0.91 pence compared to 1.88 pence for the first half of 2012, a decrease of 52%. Basic earnings per share for the first half of 2013 were negative 0.16 pence compared to 1.27 pence prior to exceptional items for the first half of 2012.

The Group has traditionally always seen a weighting towards trading in the second half of the year, with a particular bias towards the fourth quarter, consistent with clients' buying cycles. It is anticipated that 2013 will be no different.

Operating Result by Business Unit

Brady Physicals

Revenues increased by 66% in the first half of 2013 to £2.5 million compared to £1.5 million in the first half of 2012 reflecting strong growth in both new licences and service activity. The business unit contribution margin, prior to any allocation of central or shared costs, for the first half of 2013 was 17% compared to minus 23% for the first half of 2012. Subsequent to the first half of 2013, the Brady Physicals business has reduced annualised expenses by approximately £0.3 million, the benefits of which are anticipated to start to accrue in the third quarter of 2013.

Brady Energy

Headline revenues increased 4% in the first half of 2013 to £7.0 million compared to £6.8 million in the first half of 2012. The integration and reorganisation of the Energy business is complete and whilst material new business has been signed, this has largely not yet been reflected within the financial results. The business unit contribution margin, prior to any allocation of central or shared costs, for the first half of 2013 was 17% compared to 29% for the first half of 2012, largely due to the like-for-like revenue reduction. A factor behind this was that in the first half of 2012 significant new licence deals were signed as up-front licence deals whereas in the first half of 2013 significant licence deals were signed as rental deals. Substantial expenses were eliminated during and following the acquisition of Navita in early 2012. Subsequent to the first half of 2013, the Brady Energy business has further reduced annualised expenses by approximately £1.1 million. The benefits of this are anticipated to start to accrue in the final quarter of 2013.

Brady Metals

Revenues decreased 8% in the first half of 2013 to £3.5 million compared to £3.8 million in the first half of 2012 largely reflecting timing delays in securing significant new licence deals. The business unit contribution margin, prior to any allocation of central or shared costs, for the first half of 2013 was 40% compared to 50% for the first half of 2012. Subsequent to the first half of 2013, the Brady Metals business has reduced annualised expenses by approximately £0.4 million. The benefits of this are anticipated to start to accrue in the third quarter of 2013.

Brady Recycling

Revenues were £1.8 million in the first half of 2013. The SAI business was acquired in November 2012 but the revenue is similar to that of £1.9 million in the first half of 2012. The business unit contribution margin, prior to any allocation of central or shared costs, for the first half of 2013, was 11%. Subsequent to the first half of 2013, the Brady Recycling business has reduced annualised expenses by approximately £0.4 million. The benefits of this are anticipated to start to accrue in the third quarter of 2013.

Balance Sheet

The balance sheet continues to be dominated by goodwill and other intangible assets, largely as a natural consequence of the completion of six recent acquisitions. 

The Group continues to enjoy a very strong balance sheet with net cash balances at 30 June 2013 of £5.7 million. The Group continues to be debt free.

Provision has been made for estimated deferred contingent consideration of £1.4 million in relation to the SAI acquisition. Of this amount, which will only be paid subject to the Brady Recycling business unit achieving revenue and profitability growth objectives for 2013 and 2014, £0.8 million is anticipated to be settled in Brady shares and £0.6 million is anticipated to be settled in cash. As a result, the Group had free net cash balances at 30 June 2013 of £5.1 million. 

Cash Flow

The Group generated cash from operations of £1.2 million compared to cash utilised in operations of £2.2 million in the first half of 2012. Even after taking into account the exceptional items of £1.6 million in the first half of 2012, this represents a strong improvement in operational cash generation in the period. The Group has worked hard and continues to focus on tight working capital management in order to maximise cash collection and optimise cash balances. It is also comforted by the fact that the vast majority of its 300 clients are strong blue-chip companies and there is limited concentration risk in revenues.

The Group invested cash of £0.8 million in deferred consideration for the syseca and SAI acquisitions that were completed in 2012, compared to £15.1m invested in the Navita acquisition during the first half of 2012. The Group invested £1.2 million in capitalised development, compared to £1.0m during the first half of 2012.

The Group paid a dividend in May 2013 of £1.3 million, compared to £1.2 million paid in May 2012, an increase of 7%, continuing the trend of increasing dividends by 0.1 pence per share per year. Consistent with prior years, the Board is not recommending the payment of an interim dividend for 2013.

Outlook

Whilst the global economy seems to be demonstrating signs of positive progression which ought to be reflected in the increasing demand for commodities and energy, a number of commodity and energy prices remain under downward price pressure which of course is a concern in certain market segments, most notably producers. Brady has clearly seen that this has been reflected in generally slower decision making in certain areas, which has translated into a slower pace of revenue growth in the year to date than had been expected.

Brady has a strong offering with solid global coverage and its opportunities pipeline continues to grow. The Group is working very hard to close further significant new licence opportunities and has a number of advanced discussions underway. We look forward to signing and announcing further business in second half of the year. The Group believes it is prudent to expect that the revenue recognition attached to a number of the deals that it anticipates securing in the second half of the year will be deferred into 2014 and not taken in 2013 as initially anticipated. Furthermore, the Group remains committed to managing its expense base and anticipates significant financial benefit accruing to the Group in the second half of the year and beyond from the recently implemented cost saving initiatives.

Gavin Lavelle

Chief Executive Officer

Selected explanatory notes

1. Nature of operations and general information

Brady plc and its subsidiaries' principal activity is the provision of trading, risk management and settlement solutions to the energy, metals, recycling and soft commodities industries, through the delivery of client focused software and services. 

The Group provides the leading trading and risk management software for global commodity markets. The Group provides a complete integrated solution supporting entire commodities trading operations.

Brady plc, a public limited liability company, is the Group's ultimate parent company. It is registered in England and Wales. The address of Brady plc's registered office is 281 Cambridge Science Park, Milton Road, Cambridge, CB4 0WE.

These condensed consolidated interim financial statements have been prepared using the recognition and measurement principles of International Financial Reporting Standards ("IFRS") as adopted by the European Union and as issued by the International Accounting Standards Board. They do not include all of the information required for full annual financial statements as defined in Section 434 of the Companies Act 2006, and should be read in conjunction with the Consolidated Financial Statements of the Group as at and for the year ended 31 December 2012. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006. The Consolidated Financial Statements have been filed with the Registrar of Companies and are available on the Group's website, www.bradyplc.com.

Brady plc's shares are listed on the London Stock Exchange's AIM. Brady plc's consolidated interim financial statements are presented in British pounds (£), which is also the functional currency of the ultimate parent company.

2. Accounting policies

The accounting policies applied by the Group are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

3. Critical accounting judgements and key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial period, are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012.

4. Segment analysis reporting

Operating segments

In accordance with IFRS 8, "Operating Segments", information for the Group's business units has been derived using the information used by the chief operating decision maker. The Executive Directors have been identified as the chief operating decision maker as the Board is responsible for the allocation of resources to business units and assessing their performance. The Group is organised into four business units comprising different market sectors within the ECTRM market and each business unit is able to operate globally. The four business units are Metals, Physicals (or soft commodities), Energy and Recycling. The profit measure used by the Board is business unit contribution, which is operating profit for the business unit before the allocation of central and shared expenses, the amortisation of acquired intangible assets, interest income, interest expense and before exceptional items and taxation.

The tables below show an analysis of the results by operating segment:

Revenue by geography

An analysis of sales revenue by geographical market is given below:

The Group generates revenue from software licence sales, recurring support and maintenance, rental and hosting fees and the provision of associated consulting and development services. Revenues can be analysed as below:

5. Sales revenue fluctuations

The ability to predict the timing of large contract closures is inherently difficult. The Group's product offerings are important software applications and new clients need to carefully evaluate the software before placing an order. This creates long lead times and the potential for unpredictable fluctuations in sales revenue. It is anticipated that this effect will be reduced over time as the Group transitions from an up-front licence model to a rental model.

6. Share issues

The Company made various allotments of ordinary 1p shares during the period on the exercise of various share options. This increased the Company's ordinary shares issued and fully paid at the end of the period by 200,000 (year ended 31 December 2012: 1,368,455).

In addition, the Company allotted 150,572 ordinary 1p shares during the period as part of the deferred contingent acquisition consideration of SAI in November 2012, as the SAI business exceeded financial targets set for the period from acquisition to 31 December 2012.

7. Share buyback

During the period under review, the number of ordinary shares held in treasury has remained at 4,306.

8. Earnings per share

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Brady plc divided by the weighted average number of shares in issue during the period. All earnings per share calculations relate to continuing operations of the Group. Separate calculations have been prepared related to the profit or loss before and after exceptional items.

The calculation of the diluted earnings per share is based on the profits attributable to the shareholders of Brady plc divided by the weighted average number of shares in issue during the period, as adjusted for dilutive share options. All earnings per share calculations relate to continuing operations of the Group. Separate calculations have been prepared related to the profit or loss before and after the exceptional items. As the effect of dilutive share options would be to reduce the loss per share, the diluted loss per share is the same as the basic loss per share.

The calculation of the adjusted earnings per share, as calculated by external analysts, is based on the profit after tax adjusted for acquired intangible assets amortisation, share based compensation, exceptional items and normalised tax (which has been assumed at a constant 10% rate).

9. Dividends

During the period, Brady plc paid dividends of £1,296,000 to its equity shareholders (period ended 30 June 2012: £1,206,000).

10. Exceptional Items

There were no exceptional costs in the period. Exceptional costs in the period ended 30 June 2012 can be summarised as follows:

11. Goodwill

The net carrying amount of Group goodwill can be analysed as follows:

There were no changes in the net carrying amount of purchased goodwill. Changes in the net carrying amount of goodwill on consolidation can be summarised as follows:

12. Other intangible assets

Intangible assets comprise the following:

The carrying value of intangible assets at 30 June 2013 can be analysed as follows to the following cash generating units:

Changes in the net carrying amount of Group intangible assets can be summarised as follows: 

13. Cash and cash equivalents

Cash and cash equivalents comprise the following:

14. Financial Statements

The financial information for the year ended 31 December 2012 included in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies. This statement can be obtained from the Company's registered office at 281 Cambridge Science Park, Milton Road, Cambridge, CB4 0WE and will be available on the Company's website www.bradyplc.com.