Brady Regulatory News (BRY)

11 March 2013

Brady plc

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

PRELIMINARY RESULTS

For the year ended 31 December 2012

Brady plc (BRY.L), the leading global provider of trading, risk management and settlement solutions to the energy, metals, recycling and soft commodities sectors, is pleased to announce its preliminary results for the year ended 31 December 2012.

Financial Summary:

Financial Highlights:

·; Revenue increased 47% to £28.1 million (2011: £19.2 million), including an increase in recurring revenues of 48% to £14.5 million (2011: £9.8 million); 

·; EBITDA before exceptional costs increased 52% to £5.6 million (2011: £3.7 million);

·; Adjusted earnings per share1, as calculated by market analysts increased 8% to 5.94 pence per share (restated 2011: 5.50 pence per share at an assumed consistent normalised tax rate of 10%);

·; Raised £18 million gross in March 2012, following a significantly over-subscribed share placing at 77 pence per share; and

·; Dividend per share paid increased 7% to 1.5 pence per share (2011: 1.4 pence per share) 

Operational Highlights:

·; A record twenty significant new licence contracts signed in the year compared to fourteen in 2011, including global deals with prestigious industry participants and strong interest for Brady's new cloud based offering;

·; Successful installations and upgrades completed in Europe, the Americas, Asia and Africa; and

·; Acquisition of Navita in March 2012 and acquisition of SAI, a leader in the recycling market, in November 2012.

Paul Fullagar, Chairman of Brady plc, commented:

"The Group has had a very busy year, with notably strong new business deal flow. Brady is leveraging its increased scale and executing more significant transactions with world class clients. The year has also been an important one for Brady, with the completion of transformational acquisitions to enhance the Brady Energy offering and to enter the recycling market, which we see as highly complementary to the Group's existing business. We were delighted with shareholder support for the £18 million share placing in March 2012.

I look forward to reporting further positive progress in the coming months."

For further information please contact:

1 EBITDA before exceptional costs comprises operating profit before depreciation, amortisation and exceptional transaction costs

2 Adjusted earnings per share is based on earnings excluding exceptional items, acquired intangible asset amortisation charges and share based compensation charges and at a consistent normalised tax rate assumed to be 10%

3 Excluding exceptional items

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

CHAIRMAN'S STATEMENT

For 2012, the Group delivered headline revenue growth of 47% with a five year Compound Annual Growth Rate ("CAGR") of 38% as well as a substantial increase in underlying profitability. The Directors believe that this demonstrates the ongoing success of the business strategy and continues the momentum of recent years. A record year of new licence contract wins is very encouraging given the continuing challenging economic conditions. These deals are detailed further in the Chief Executive's Review.

The successful placing used to fund the Navita AS ("Navita") acquisition in March 2012 was very well received and has increased the Company's capital base, liquidity and the level of institutional holdings. The Group is well placed to address demand in the global energy and commodity market place. With the significant increase in Brady's brand value, Brady is increasingly executing business with top quality names around the world, signing more global deals and adding to the 300 strong client base of largely blue-chip, referenceable clients. Brady's most recent user group in Vienna was attended by a record 170 attendees.

The Group entered the recycling market in November 2012 with the acquisition of Systems Alternative International LLC ("SAI"). Recycling is a very exciting market in its own right, but has also completed Brady's offering to the metals community and strengthened the Group's position in the U.S.A.. The SAI team successfully brought substantial new business to the Group in the first weeks following the acquisition and they continue to trade ahead of management's expectations.

The Board continues to evaluate consolidation opportunities whilst remaining focussed on ensuring that the recent acquisitions are bedded in and performing well.

The Group has enjoyed a strong financial position during 2012 and maintained substantial cash balances with no debt.

People

I would like to thank all of our Directors and employees for their efforts during a very busy year delivering further impressive growth and a strong performance in a period of significant change. Their commitment, loyalty and hard work continue to be very much appreciated and will remain critical to facilitate further positive progress.

Clients

Brady is now the largest European headquartered company in the Energy and Commodity Trading and Risk Management ("ECTRM") software market, is ranked the global number one in the metals market and the number one in the U.S.A. recycling market. The Board appreciate the ongoing support from the Group's approximately 300 global clients.

Investors

Brady is the only publicly quoted ECTRM software provider. The Board was very pleased with the continuing endorsement of the Group's strategy, as evidenced by strong support for the £18 million share placing completed in March 2012 and is pleased to welcome a number of new shareholders.

Conclusion

The Board continues to see the energy, metals, recycling and commodity trading markets as a highly attractive business opportunity. The Group has a clear growth strategy and has demonstrated strong execution and growth in recent years. There is an expanding client pipeline and the Group remains focused on winning business from new clients and securing further licence business and service engagements from existing clients, whilst actively pursuing further attractive acquisition opportunities.

We look forward to building on the success achieved in 2012 and reporting positive progress during 2013.

Paul Fullagar

Chairman

CHIEF EXECUTIVE'S REVIEW

I am very pleased to announce another successful year of continued growth and progress from the Group. Despite continued uncertain macro economic conditions the energy and commodity markets are providing relatively good trading conditions. Brady has had a record year in winning new business and has successfully secured attractive business around the world with some of the leading names in the marketplace, including deals in Europe, North and South America, Africa and Asia.

Brady has seen increasing demand for its cloud-based solution, including a sale to the world's largest copper producer, which provides our clients with lower cost-of-ownership, a faster route to market and a more scaleable solution globally. From no cloud-based clients three years ago, Brady now has seventeen hosted clients and anticipates further take-up. In conjunction with the transition to a licence rental model, Brady sees this offering as a competitive advantage versus its competitors in securing new clients.

Brady has been consolidating the energy software sector, extending its offering to the physical market, expanding asset class coverage, establishing a leading position in European energy space and entering the North American market. Brady can now offer metal, recycling, energy and soft commodity solutions to meet the multiple asset class requirements of our clients.

In November 2012, Brady strengthened its leadership in the metals market and presence in the U.S.A. with the addition of SAI's recycling software. Recycling is a key element in the metals value chain and Brady are the only company able to offer raw material, recycling, refined and derivative solutions to the metals sector.

A record 20 significant new licence deals were signed in 2012, compared to 14 in 2011; these deals were across our four business units and in all our sales territories. These significant deals are discussed in more detail in the Operational Highlights below. Notably, the average licence deal value in 2012 increased by 75% compared to 2011 as Brady is increasingly able to leverage its increased scale and market presence.

Brady has doubled its client base from approximately 150 at the end of 2011 to approximately 300 at the end of 2012. The tangible benefits of scale and cross-selling have been clearly demonstrated by a number of cross-sell deals this year.

I believe we have a first class team and a unique opportunity to maintain and grow this world leading position within our chosen markets, both organically and via acquisition. We anticipate that delivery on this strategy will create an attractive investment opportunity and create further significant value for our shareholders.

I am pleased to provide a summary of the financial and operational highlights in 2012, together with an outlook for 2013:

Financial Highlights

·; Revenues increased by 47% to £28.1 million (2011: £19.2 million)

·; Recurring revenues increased by 48% to £14.5 million (2011: £9.8 million), comprising 52% of total revenues (2011: 51%);

·; EBITDA before exceptional costs increased by 52% to £5.6 million (2011: £3.7 million). Operating profit before exceptional transaction costs increased by 40% to £3.3 million (2011: £2.4 million);

·; Adjusted earnings per share, as calculated by market analysts increased to 5.94 pence per share (restated 2011: 5.50 pence per share at assumed consistent normalised 10% tax rate);

·; Net cash resources at the end of the year were £7.8 million contributing to a very strong balance sheet with no debt; and

·; Proposed final dividend up 7% to 1.6 pence per share (2011: 1.5 pence per share).

These financial highlights are discussed in more detail in the Financial Review.

Operational Highlights

The Group now totals approximately 250 employees, with around half of the total working in technology, enabling the Group to leverage a wider pool of skills. The Group's major initiatives in the year have been its Cloud initiative and its Service Oriented Architecture ("SOA") programme.

Cloud

The Group has continued to see a growth in demand for Brady to host its software solutions on clients' behalf. As at 31 December 2012, Brady hosted 17 (2011: nine) clients and anticipates significant growth in this number going forward. In conjunction with the transition to a licence rental model, Brady sees this offering as a competitive advantage versus its competitors in securing new clients.

Service Oriented Architecture Programme

Central to the Group's development strategy is the SOA programme which aims to deliver 'best of breed' enterprise wide services. These services, which are built using the latest inter-operable technologies, allow re-use of components and modules across the Group. This can save duplicated time and build costs, provide greater business agility, reduce maintenance costs, facilitate platform and product consolidation and add value to clients by allowing features previously only available in one product to be also available in other products.

In addition, the goal is to extend this principle beyond Brady's enterprise solutions by allowing Brady's services to be used with other solutions across a client's enterprise, for example the Curve Provider Service, Static Data Service, the Market Data Service and Margin Service.

Business Units

The Group is now organised into four business units comprising different market sectors within the ECTRM market. The four business units are Physicals, Energy, Metals and Recycling. Each business unit has dedicated divisional CEO leadership. Each business unit is supported by a number of shared Group functions, such as marketing, finance, technology, HR and IT. I will provide operational highlights of each business unit separately as well as highlighting progress on Group matters.

Brady Physicals

2012 was another strong year for Brady Physicals, which include soft commodities and agriculturals, continuing a positive trend which has delivered CAGR of 28% in revenues since 2009.

The business has enjoyed a significant level of activity, with substantial new client wins, good progress on new product development and the introduction into new markets.

In total six significant new deals were secured for the Brady Physicals business unit in 2012, a record for the team. These deals have brought Brady Physicals' first installations in the U.K., Hong Kong, U.S.A. and in Brazil.

The signature of a major diversified trading company provided a unique opportunity to further strengthen Brady's position in physical metal trading, where Brady is already seen as a market leader. This project also facilitated development of new components using the SOA architecture incorporating a Curve Server and Valuation Server. Successful implementation led to further significant licence deals for global cotton, including installation in Singapore, Brazil, U.S.A. and London as well as metal warehousing. In both cases, the major driver from the client to sign further business with Brady was the requirement to have an integrated system able to manage in a comprehensive manner the business from start to end including physical and derivatives, trading and accounting. This is ultimately the real strength of our physicals solution and distinguishes Brady from most competing solutions in the marketplace.

Brady Physical's support team was further strengthened during the year, including the posting of its first staff in Asia and the Americas, in order to manage the growth achieved and to cope with further anticipated growth and in order to maintain the current high levels of client satisfaction.

The enhancements added to the Brady Physicals solution and the investments made in delivery and support capabilities allow the business to be strongly positioned for further new business in 2013.

Brady Energy

The general outlook for the energy markets has been challenging during 2012. However, there remains a strong interest in cross-border trading as the European market continues to de-regulate in line with the European Electricity Grid Initiative ("EEGI"). The ability to manage cross border physical trading is a unique aspect within Brady Energy's offering.

2012 was a transformational year for Brady Energy with the acquisitions of Navita and syseca AG ("syseca"). With Navita focused on meter data management and physical trading and syseca on pan-European connection to the power grid via Transmission System Operators ("TSO"), combined with Brady Energy's existing strength in risk and derivatives, Brady now has a comprehensive solution for the power and gas markets.

Significant reorganisation was required during 2012 in order to consolidate the platforms and streamline the internal reorganisation. The integration was agreed prior to acquisition and will provide significant ongoing cost savings. Whilst the reorganisation took longer than initially expected, requiring management changes during the second half, the reorganisation has now been largely completed.

The five significant new deals for the Brady Energy business unit in 2012 including deals in Italy and Africa, prove that Brady Energy's IP can travel beyond the business unit's stronghold in Northern Europe. The deals comprised:

·; A contract management system to a Nigerian power station owned by several international oil companies;

·; A risk management solution to a leading Italian power company;

·; Brady Energy's EU and UK power scheduling solution to one of the largest energy groups in Norway to handle its power scheduling requirements in the UK, Germany, France, Czech Republic, Slovakia, Hungary, Romania, Austria, Netherlands and Belgium;

·; A solution to support gas trading operations in central Europe for a Nordic company, a leader in the integration of bio and forest industries; and

·; A solution to support operations, production planning and risk management for a power production company, one of the largest hydro power producers in Norway.

With the acquisitions now bedded in, the main focus for 2013 will be securing new business and accelerating growth. With the addition of five new sales executives, an agreed product and technology positioning and stronger Brady branding, I am confident about the growth prospects for the business.

Brady Metals

Market conditions in 2012 were dominated by the slowdown in Chinese growth which resulted in generally depressed commodity prices. Brady Metals' target clients are miners, trading houses, smelters and fabricators, who all implement risk and credit management systems. There continued to be less demand from banks and brokers as the on-going regulation and increased capital requirements caused a number of them to exit or reduce their commodity trading businesses.

The seven significant new deals for the Brady Metals business unit in 2012 included:

·; To the world's largest producer of copper and molybdenum, Brady's solution to manage its global metal trading position and risk management across its global activities, with Brady's cloud based solution;

·; To a major global trading company to further enhance its web-based, real-time trading and risk solution;

·; Solutions to a Category 1 LME global securities and investment banking group;

·; Solutions to one of the oldest independent and privately held commodity trading companies specialising in non-ferrous raw materials, as well as tin, cobalt, nickel, precious metals; and

·; A substantial contract extension with a leading Asian gold trading company.

The main product development initiative completed in 2012 was a real-time browser based solution for profit and loss and risk, which led to one of the significant licence deals included above.

The sales team has been enlarged to eight (2011: four) quota carrying salespeople which it is anticipated will secure further growth. Specific objectives for 2013 include expanding the product offering to include cross asset positions, profit and loss and risk management, allowing consolidation of transactions from all market systems including Brady solutions.

Brady Recycling

The SAI acquisition was completed in November 2012. SAI is the market leader in recycling software in the U.S.A.. Recycling is an important input into the metals value chain and is therefore highly complementary to Brady's existing metals business. This acquisition has also strengthened Brady's position in metals in the Americas.

The two significant new deals for the Brady Recycling business unit in 2012 were with a U.S.A. based metal broker and leading provider of outsourced industrial services to steel mills globally and a leading Midwest U.S.A. recycler of non-ferrous metals and ferrous scrap, auto salvage yards and electronics recycling. During the year, Brady Recycling clients added 59 new sites to the user base.

Metal processors and brokerage firms continue to be the primary target, with a noticeable increase in prospects now compared with this time last year, some of these potential clients with high strategic value to Brady. Also, just prior to acquisition, Brady Recycling introduced IMPACT, a specialised raw material procurement, inventory, supply chain and order management system, targeted to both steel mills and foundries.

Markets so far this year continue to be flat, thus driving strong demand for hedging solutions, a core strength for Brady, particularly with the introduction of a scrap future contract on the Chicago exchange. We also believe there may be increased acquisition activity in our clients' market in 2013, which typically means clients extend their licences and solutions to cover the new acquired sites.

New product development continues in parallel with a number of technology refresh initiatives.

Brady Recycling is well positioned for a successful 2013 and intends to focus on the core markets and aggressively developing the steel market. This will be aided by the global Brady brand and the new international sales presence.

Business Model

The Group announced in January 2012 its decision to undertake a phased transition from an up-front licence model to a rental model. Of the significant licence deals signed in the year, seventeen were up-front licences and three were rental deals. The transition to a rental model has been slower than anticipated as the Group focused on securing nearer-term business opportunities in the pipeline that were being negotiated on an up-front licence basis in line with our objective of delivering shareholder returns. However, our commitment to move to a rental model remains and we anticipate that further progress will be made in 2013. The benefits from the rental model are an improved ability to forecast revenues with inherently lower licence revenue risk, ultimately higher visibility and quality of earnings and higher lifetime revenues from individual client contracts.

Strategy and Global Operations

The Group has continued to demonstrate that it can secure contracts with blue-chip clients around the world. The European presence was further strengthened following the two energy business acquisitions in Europe, with the EMEA region generating 78% of total revenue (2011: 77%). To complement this, the Group has built a team in North America to service local clients and added substantial capability following its acquisition of SAI in November 2012. Americas generated 13% of total revenue (2011: 10%), which is expected to increase in 2013. The Group opened an office in Singapore in 2010 and the region has provided strong growth. It is currently being expanded with additional sales and service staff. The APAC region generated 9% of total revenue (2011: 13%).

Market

Brady operates in the metals, energy, recycling and soft commodities markets, with a particular expertise in delivering software solutions and associated services for physical and derivative trading, risk management, finance and logistics. These markets have continued to receive attention from investors worldwide partially because of the potential returns and price volatility. Approximately 40% of Brady's clients are trading companies, who thrive on market volatility.

The Group has successfully increased its market share in the ECTRM market. We believe we are now the largest native European ECTRM software provider, the fifth largest globally by revenue, the number one in metals globally, the largest in Europe for energy by number of client installs and the number one in recycling in the Americas.

Key drivers behind demand for new systems from Brady include:

·; Cloud delivery of our solutions, giving faster deployment, less overhead and significantly lower cost-of-ownership to Brady's clients;

·; Focus on risk management and hedging, in particularly against market, counterparty, operational and liquidity risks. While political sensitivities mean that regulations are taking longer to deploy than originally anticipated, Brady still expects to see profound changes in the way that many markets trade as regulators respond to the credit crisis with more centralised clearing and increased regulatory requirements, for example from the Dodd-Frank law, MIFID and Basel 3; and

·; the impact of EEGI, which is expected to increase cross-border energy trading, increase the proportion of energy generation from renewable sources, see the lower use of carbon intensive energy sources as well as increased traction in the roll-out of smart metering. These are all expected to generate higher volumes and more complexities in energy trading within European energy markets.

Summary and Outlook

The Board is very pleased with the Group's progress in 2012 which, with 20 significant new licence contracts, a number of installations and upgrades worldwide, as well as three new acquisitions, we believe continues to demonstrate the success of the Group's strategy. The commercial focus has delivered strong growth. The Board believes that the Group is well placed to deliver further momentum in growth during 2013 and beyond.

Although there are still concerns about the economic outlook for 2013, I am optimistic that the growth in the Group's underlying markets will continue to be supported by powerful market drivers. The Group now has a much larger client base, stronger cross-product offering and wider geographic reach in order to take advantage of this opportunity. Brady is seeing the benefits of increased scale and reach.

Now that the two recently acquired businesses have been integrated within Brady Energy, the Group expects the year to be very busy as we will be working hard to complete the implementations currently underway, to secure new business and to translate growth in the pipeline into the signing of new business. We are encouraged by an advanced pipeline which, in monetary terms increased during 2012 and further in early 2013.

The Group's trading to date remains in line with the Board's expectations.

Gavin Lavelle

Chief Executive 

FINANCIAL REVIEW

I am pleased to provide a more detailed review of the financial highlights:

Group Trading Performance (before exceptional items)

Revenue Mix

Revenue for the year increased by 47% to £28.1 million (2011: £19.2 million). The revenue composition is summarised in the table below:

The increase in recurring revenues continues to be a very important metric which helps to underpin quality and visibility of earnings. Recurring revenues comprise annual maintenance fees generated from the Group's up-front licence sales as well as recurring licence rental fees. Recurring revenues grew by 48% to £14.5 million from £9.8 million as a consequence of the Group's larger installed client base, which now totals approximately 300 clients. Significantly, recurring revenue comprised 52% of total revenues, a further increase from the 51% in 2011 and a very substantial increase from the 28% in 2007. The Group's strategy is to transition to a rental model across the whole business in due course and it intends to continue to progress this transition during 2013.

Licence revenues increased by 87% to £6.3 million from £3.4 million. This substantial increase has been as a result of the quality of the new business that was secured and the acquisitions made:

(1) Firstly, the number of significant deals signed in the year grew to a record of twenty (of which seventeen were up-front licence deals) from fourteen in 2011 (of which eleven were up-front licence deals). Of these up-front licence deals signed, the Group has deferred the licence revenue attached to three of them in accordance with its revenue recognition policy. For 2011, the licence revenue from all the significant up-front licence deals signed was recognised in the same year; and

(2) Secondly, the average licence deal value increased by 77% on a comparable basis as the Group now has a broader offering to sell to its clients and has also experienced less pricing pressure due to its strengthened branding and increased market presence.

This represents very strong deal momentum and provides enhanced visibility of 2013 revenues through the deferred licence revenue attached to three of these significant licence deals, the increasing ongoing recurring revenues and the service work associated with these implementations.

Services and development revenues increased 22% to £7.3 million from £6.0 million. Whilst this is an increase in absolute terms, this was more modest for the following reasons:

(1) Firstly, as the Group trends towards offering more hosted cloud solutions, the ease and time to implement improves and the cost reduces, thus reducing service revenues albeit increasing the future annuity type recurring revenue streams that the Group is focussed to build;

(2) Secondly, service work generally has been a challenge to secure particularly in Europe where clients have retained tight control over potential discretionary projects; and

(3) Thirdly, there was some distraction and a reduced focus on securing and delivering service revenues in the Energy business during the second half of 2012 whilst the integration process took longer than initially expected.

Revenue growth

Headline revenue for the year increased by 47% to £28.1 million (2011: £19.2 million), which included the revenue from three acquisitions completed during the year:

This reduction in revenue in the business pre-acquisitions was primarily caused by the disruption from the longer than anticipated reorganisation of the Brady Energy business unit following the acquisitions of Navita and syseca. The Board believes that this was a temporary effect and anticipates all efforts being directed towards business growth now that the integration is largely complete.

Research and development expenditure

Total research and development expenses increased by 55% to £7.5 million (27% of total revenue) from £4.8 million in 2011 (25% of total revenue) as the Group remained committed to investing in its product offerings. Of this total spend, £5.6 million was expensed (2011: £3.8 million). Of the total spend, £1.9 million (2011: £1.0 million) was capitalised, representing 26% of the total spend (2011: 21%).

Gross margin

The overall gross margin increased to 64% from 51%. This increase is primarily a reflection of the change in business mix which saw a much higher proportion of licence revenues.

Profitability

EBITDA before exceptional transaction costs increased by 52% to £5.6 million (2011: £3.7 million), with an EBITDA before exceptional costs margin of 20% (2011: 19%).

Operating profit before exceptional items and tax increased 40% to £3.3 million (2011: £2.4 million), which reflects the higher proportion of non-cash acquisition related charges, as noted above. Profit before exceptional items after tax increased 34% to £3.0 million (2011: £2.3 million).

Trading Performance by business unit (before exceptional items)

The revenue and contribution by business unit, prior to any allocation of central or shared costs, is summarised below:

Brady Metals

Revenues decreased marginally in 2012 to £8.0 million compared to £8.3 million in 2011 reflecting market conditions in the sector and the timing on the revenue recognition of two significant licence deals which were deferred from 2012 pending clients' acceptance. Of particular note, there was very strong demand for the concentrates offering which grew 26% in 2012 compared to 2011. The business unit contribution margin, prior to any allocation of central or shared costs, was 50% (2011: 47%).

Brady Physicals

Revenues increased 7% in 2012 to £4.7 million compared to £4.4 million in 2011, with the underlying growth rate being 13% at constant exchange rates. The second half of the year saw accelerated demand for both new licence business and service work. The business unit contribution margin was 21% (2011: 23%). There has been investment incurred in service and delivery in order to ensure that the business is well placed to deliver on the substantial momentum of deal flow that it is currently enjoying, which is anticipated to fuel growth in 2013.

Brady Energy

Headline revenues increased 118% in 2012 to £14.0 million compared to £6.5 million in 2011, which included the revenue from two acquisitions completed during the year. The reduction in the business ex acquisitions reflects the disruption resulting from the integration process for the three energy businesses, which is now largely complete.

The business unit contribution margin was 24% (2011: 34%), the reduction largely due to the reduced level of new business secured during the extended integration period in the second half of the year.

Brady Recycling

Revenues were £1.4 million in the year following the acquisition of SAI in November 2012. The business unit contribution margin was 73%, which was particularly high due to the inclusion of substantial new licence revenue earned in the very short period between acquisition and the year end date. This contribution percentage is not considered representative of a normal full year's trading performance.

Exceptional items

The exceptional items in the year of £2,563,000 comprised:

(1) £861,000 related to the professional fees incurred in relation to the acquisitions of Navita, syseca and SAI which were all completed in 2012. The exceptional items in 2011 of £326,000 related to the professional fees incurred in that year in relation to the acquisitions of Navita and syseca, which were both subsequently completed in early 2012.

(2) £750,000 related to a provision made in the first half of the year against a client payment dispute and associated legal expenses incurred. There have been no further developments in this dispute.

(3) £952,000 related to the Brady Energy reorganisation. Although accounted for in the negotiated purchase price, £388,000 of the pre-agreed reorganisation costs provided by Navita at the time of acquisition were required to be expensed under IFRS because the expenses were specifically incurred in contemplation of the acquisition. Further reorganisation changes were initiated in the second half of 2012, with the costs of effecting these changes amounting to £564,000.

Finance income

Interest income from the Group's cash resources was £64,000 (2011: £68,000), again remaining modest due to inherently low interest rates available during the year.

Income Tax

The overall tax charge for the year was £0.3 million (2011: tax charge of £0.2 million), representing an effective tax rate on profits before exceptional items of 10% (2011: 7%). Although a proportion of profits are being generated in higher taxed jurisdictions such as the U.S.A., Norway and Switzerland, the Group continues to benefit from the attractive research and development tax credit regime in the United Kingdom which contributed to significantly reduce the Group's overall tax rate in the year. The Group also inherited unutilised tax losses following its acquisition of Navita and the Group has benefited from deferred tax credits associated with the amortisation of acquired intangible assets and capitalisation of development costs. The Group retains unused tax losses of approximately £5.4 million which are expected to be available for set-off against future taxable profits generated from the Brady Energy business in Norway.

Corporate structure

On 1 January 2012, certain parts of the trade and associated assets of Brady plc were hived down to Brady Trading Limited, a wholly owned subsidiary of Brady plc.

Earnings and dividends

After including the exceptional costs, profit before tax decreased to £0.8 million (2011: £2.1 million) and profit after tax decreased to £0.5 million (2011: £1.9 million).

The weighted average number of shares in issue increased to 75.6 million (2011: 54.2 million) almost entirely because of the £18 million share placing completed in March 2012. Adjusted earnings per share, as calculated by market analysts, adjusted to exclude share based payments, amortisation of acquired intangible assets, exceptional items and assuming a consistent normalised tax rate of 10%, increased to 5.94 pence per share (2011: restated to 5.50 pence to assume the same 10% tax rate).

The Board is pleased to propose an increase in the dividend to 1.6 pence per share (2011: 1.5 pence per share). This continues a track record of increasing the annual dividend by 0.1 pence per share per year. If this is approved by shareholders at the forthcoming Annual General Meeting, the dividend will be paid on 21 May 2013 to members whose names appear on the register at the close of business on 26 April 2013.

Share issues

The Board was pleased with the investor appetite to participate in the Company's £18 million share placing in March 2012 which was used to fund the acquisition of Navita. In addition, the Company allotted 918,762 ordinary 1p shares during the year as part of the acquisition consideration of Navita in March 2012 and 675,951 ordinary 1p shares during the year as part of the acquisition consideration of syseca in February 2012.

During the year 1,368,455 (2011: 293,750)share options held under the Company's share option schemes were exercised. The exercise proceeds following the exercise of these share options was £672,000 (2011: £188,000).

Treasury shares

The total number of ordinary shares held in treasury during the year remained at 4,306.

Acquisitions

Three acquisitions were completed in the year, with full financial details of the acquisitions included in the attached notes.

The acquisition consideration for Navita totalled £17.2 million of which £16.8 million was paid in cash on completion, £0.8 million was settled in Brady plc shares issued at completion and £0.4 million was repaid in cash in August 2012 in relation to a shortfall in working capital.

The acquisition consideration for syseca totalled £1.5 million of which £0.5 million was paid in cash on completion, £0.5 million was settled in Brady plc shares issued at completion, £0.2 million was paid in cash in June 2012 in relation to a surplus in working capital and £0.3 million of deferred consideration was paid in cash in February 2013.

The acquisition consideration for SAI totalled £5.9 million of which £3.9 million was paid in cash on completion, £0.5 million was paid in cash in January 2013 in relation to a surplus in working capital plus an estimated £1.5 million of a maximum possible £2.4 million of contingent consideration which has yet to be paid. Contingent consideration of £0.1 million will be payable in Brady plc shares in 2013 in relation to 2012 financial performance targets that were exceeded with the remaining £1.4 million being a probability weighted and time discounted estimate of contingent consideration payable in relation to 2013 and 2014 financial performance. It is estimated that £0.9 million will be paid in 2014, of which £0.3 million will be paid in cash and £0.6 million in Brady plc shares and £0.5 million will be paid in 2015, of which £0.2 million will be payable in cash and £0.3 million in Brady plc shares.

Thus, total committed contingent cash consideration in relation to SAI and syseca to be paid in 2013 in cash totals £0.8 million. The maximum potential contingent consideration to be paid in 2014 and 2015 should SAI meet all its financial targets for 2013 and 2014 will be £2.3 million, of which £0.9 million will be payable in cash and £1.4 million in Brady plc shares.

Balance sheet

The composition of the balance sheet has changed significantly during the year, in particular following three acquisitions and a share placing. However, the Group continues to retain a very strong balance sheet, with tangible assets dominated by cash and cash equivalents and free of any debt.

Non-current assets

Goodwill increased to £23.8 million from £9.2 million following the three acquisitions completed in the year.

Acquired software increased to £9.8 million from £4.1 million and acquired client contracts increased to £4.2 million from £0.9 million following the three acquisitions completed in the year.

As required by IAS38 Intangible assets the Group capitalised £1.9 million (2011: £1.0 million) of expenditure in relation to strategic software development programmes. The Group has a continued commitment of enhancing and expanding its offerings and taking its technology forward. The bulk of expenditure incurred during the year on research and development was, however, expensed as incurred. Net of amortisation to date, the book value of capitalised development costs increased to £3.2 million (2011: £1.8 million).

A deferred tax asset of £0.7 million has been recognised in relation to historic tax losses acquired in Navita. These losses are anticipated to be available for set-off against future trading profits.

Current assets

Trade and other receivables increased to £7.0 million (2011: £3.9 million) and accrued income increased to £2.0 million (2011: £1.3 million), both largely as a result of the increased scale of the business.

Current Liabilities

Trade and other payables increased to £7.2 million (2011: £3.7 million) and deferred income increased to £3.7 million (2011: £2.4 million), both largely as a result of the increased scale of the business. Included within current liabilities are committed contingent acquisition payments totalling £0.9 million.

Non-Current Liabilities

Deferred tax liabilities increased to £4.2 million (2011: £1.8 million), largely as a result of the three acquisitions in the year, with £0.3 million of the increase arising from tax temporary differences on capitalised development. Included within non-current liabilities are contingent acquisition payments totalling £1.4 million in respect of SAI.

Cash and cash flow

The Group enjoyed positive operating cash generation, at £1.3 million (2011: £2.8 million), again running comfortably ahead of operating profit after exceptional costs.

The Group had investment outflows of £19.8 million (2011: £3.5 million) of which £17.5 million related to payments in relation to acquisitions, principally £14.8 million in relation to Navita and £2.8 million in relation to SAI (2011: £1.9 million in relation to the Brady Energy acquisition completed at the end of 2010). Investment outflows of £1.9 million related to capitalised development (2011: £1.0 million) representing 26% of total development spend (2011: 21%). Investment outflows of £0.4 million related to property, plant and equipment (2011: £0.7 million).

The Group secured net financial inflows of £16.1 million of which an inflow of £17.1 million related to net proceeds of the share placing, an inflow of £0.7 million related to the proceeds of share option issuances (2011: £0.2 million) and a dividend was paid of £1.2 million (2011: £0.8 million). In addition, the Group repaid a debt of £0.5 million that it acquired following its acquisition of Navita.

The Group's cash balance continues to be maintained in excess of its normal working capital requirements. The Board continues to believe that a strong balance sheet, with high cash balances and no debt, is an important requirement for the Group's large global clients and potential clients looking to contract with Brady. It is also anticipated that part of the surplus cash resources may be used to finance smaller "bolt-on" future acquisition opportunities.

Risk

The principal credit risk faced by the Group relates to trade receivables. Whilst the Group did provide against certain client receivables in 2012, this risk is reduced by the fact that the Group's principal clients are large institutions and the revenues are spread across approximately 300 clients, without significant concentration risk in revenues. The major proportions of the Group's revenues and expenses are denominated in pounds sterling, Norwegian Krone, Swiss Francs and to a lesser extent Euros and U.S. dollars. New treasury and foreign currency management procedures have been initiated during the year in order to track the exchange exposure but the Group has largely relied on the dominant natural hedges of payables offsetting receivables for overseas currencies.

Tony Ratcliffe

Finance Director

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

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

2. Basis of preparation

The financial information included in this report does not constitute statutory accounts for the purposes of section 434 of the Companies Act 2006. The comparative financial information contained in this statement has been extracted from the 2011 financial statements upon which the Auditor's opinion is unqualified and does not include any statement under Section 498(2) or Section 498(3) of the Companies Act 2006. For further information, please refer to Brady plc's Consolidated Financial Statements 2011, which have been filed with the Registrar of Companies and are available on the Company's website, www.bradyplc.com

These condensed consolidated preliminary financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the Companies Act 2006 that applies to companies reporting under IFRS and IFRIC interpretations.

3. Summary of significant 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 2011.

Going concern

The Group has maintained its strong liquidity position and remains debt-free, despite significant expenditure on acquisitions during the year, supported by the share placing in the year. The Group's forecasts and projections, taking into account reasonably possible changes in trading performance of the enlarged Group show that the Group should be able to operate within the level of its current financing. After making enquiries, the Directors have a reasonabl expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.

Basis of consolidation

The Group financial statements consolidate those of Brady plc and of its subsidiary undertakings at the statement of financial position date. Subsidiary undertakings are entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from the activities, which is considered to represent control. The Group obtains and exercises control through voting rights.

Profits or losses on intra-Group transactions are eliminated in full, unless intra-group losses indicate impairment in which case elimination may not be appropriate. Acquisitions of subsidiaries are dealt with by the acquisition method.

Business combinations

For business combinations since 1 January 2010, the requirements of IFRS 3 (Revised) have been applied.

On acquisition of a subsidiary, all of the subsidiary's assets and liabilities which exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of consideration over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Identifiable assets are recognised regardless of whether they have been previously recognised in the acquired company's financial statements. Consideration is the fair values at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control. For contingent consideration, the Directors assess the probability of each payment being made and discount each future estimate by the Group's estimated cost of capital. Acquisition costs are expensed as incurred.

Prior to 1 January 2010, business combinations were accounted under the previous version of IFRS3 or under UK GAAP.

When Brady plc acquired Colplan Systems Limited in 2004, there was a share-for-share exchange. The UK merger relief criteria were met and so a merger reserve was recognised. The business combination was prior to the date of transition to IFRS being 1 January 2006.

Operating segments

Whilst still servicing a single market sector, the ECTRM market, with effect from 1 January 2012 management evaluates the nature and results of the Group's operations through four distinct trading business units. Therefore additional disclosure has now been provided under IFRS 8 Operating Segments in the financial statements. The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements.

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the identifiable net assets acquired and is capitalised.

Goodwill is subject to annual impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to those cash-generating units that are expected to benefit from the synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows. The recoverable amount is tested annually or when events or changes in circumstances indicate that it may be impaired. The recoverable amount is the higher of the fair value less costs and the value in use in the Group. An impairment loss is recognised to the extent that the carrying value exceeds the recoverable amount. In determining a value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the cash generating unit that have not already been included in the estimate of future cash flows. 

If the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, then the identifiable assets, liabilities, contingent liabilities and the cost of combination are re-assessed. Following the re-assessment, any profit or loss in excess of the carrying value is recognised immediately.

Goodwill previously written-off under UK GAAP prior to the adoption of IFRS for the restated statement of financial position of 1 January 2006 has not been reinstated. Goodwill previously written off to reserves is not written back to the statement of comprehensive income on subsequent disposal.

Revenue

Revenue comprises the value of sales (excluding trade discounts and VAT) of goods and services in the normal course of business. All revenue is measured at fair value of consideration. The Group has five sources of revenue and the policy on revenue recognition of each is detailed below. Contracts with clients typically contain a number of these sources of revenue which have separate detailed contractual arrangements within an overall agreement and are therefore treated on an unbundled basis. 

·; Licence revenues under the up-front licence model are recognised on written or contracted acceptance of the software, when the client has confirmed all obligations in relation to the core software have been substantially completed. At the date the client has accepted the product the risks and rewards of ownership have transferred and it is probable that the economic benefits of the transaction will flow to the Group. To the extent that payments have been received in advance for licences, where written or contracted acceptance has not yet been reached, these amounts are recognised as deferred income;

·; Revenues under the rental model cover the contractual period of use and are recognised over the period to which the rental fee relates but only after written or contracted acceptance of the software, as defined above, has been received;

·; Consulting and professional service fee revenues, which are typically billed on a time and materials basis, are recognised as the work is performed provided that the amount of revenue can be measured reliably using timesheets or management estimates, it is probable that the economic benefits of the work performed will flow to the Group and the costs involved in providing the service can be measured reliably;

·; Support and maintenance as well as hosting revenue is recognised evenly over the period to which it relates in line with contractual terms; and

·; Where revenue arises from client specific-software development, or where specific customisation or modification of the software is required, then revenue is recognised as the revenue and costs of the contract progresses, the stage of completion of the contract can be reliably measured based on work done and it is probable that the remaining obligations on the project will be satisfied and so economic benefits will flow to the Group. Full provision is made for losses on contracts in the period in which the loss is first foreseen.

Interest

Interest is recognised using the effective interest method, which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying value of the financial asset.

Dividends

Dividends are recognised when the shareholders' right to receive payment is established.

Research and development

Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. 

In accordance with IAS 38, development costs incurred are capitalised only when all the following conditions are satisfied:

·; Completion of the intangible asset is technically feasible;

·; The Group intends to complete the intangible asset and use or sell it;

·; The Group has the ability to use the asset or sell it;

·; The intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

·; There are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

·; The expenditure attributable to the intangible asset during its development can be measured reliably.

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the intangible asset to be capable of operating in the manner intended by management. Directly attributable costs comprise employee salary and other employment costs incurred, on a time apportioned basis, on software development. The costs of internally generated software developments are recognised as intangible assets and are subsequently measured in the same way as externally acquired licences. However, until completion of the development project, the assets are subject to annual impairment testing only. Amortisation commences upon completion of the asset, and is shown within selling and administrative expenses in the statement of comprehensive income. The amortisation period for development costs incurred in the Group is up to five years.

Amortisation of acquired intangible assets

Acquired intangible assets are stated at cost, net of amortisation and any provision for impairment. Amortisation is calculated to write off the cost of all intangible assets over the expected useful economic lives of typically ten years. Following any impairment, the amortisation is based on the revised carrying amount and, where applicable, the revised useful life.

Property, plant and equipment

Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment, if applicable. Depreciation is calculated to write off the depreciable amount (cost less residual value) of all property, plant and equipment by equal instalments over their expected useful economic lives. The rates generally applicable are:

·; Improvements to property 25% on cost

·; Computer equipment 33% on cost

·; Computer software 33% on cost

·; Fixtures, fittings and equipment 20% - 25% on cost

Material residual value estimates are updated as required, but at least annually. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.

Taxation

Current income tax is the tax currently payable based on taxable profit for the year.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the statement of financial position date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited in other comprehensive income or directly to equity (such as share based payments) in which case the related deferred tax is also charged or credited in other comprehensive income or directly to equity.

Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size of incidence to enable a full understanding of the financial performance. Transactions which may give rise to exceptional items are principally acquisition transaction costs and post acquisition reorganisation costs.

Financial assets

Financial assets are loans and receivables. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in profit or loss.

Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate.

An assessment for impairment is undertaken at least at each reporting date.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs.

At each reporting date financial liabilities recorded at amortised cost use the effective interest method, with interest-related charges recognised as an expense in finance cost in profit or loss. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Contingent consideration is measured at fair value through profit and loss in the statement of comprehensive income,

A financial liability is de-recognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

Foreign currencies

Transactions in foreign currencies are translated into the functional currency of the individual entity within the Group at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the statement of financial position date. All exchange differences are dealt with through profit or loss in the statement of comprehensive income.

The assets and liabilities in the financial statements of foreign subsidiaries and associates and related goodwill are translated at the rate of exchange ruling at the statement of financial position date. Income and expenses are translated at the actual exchange rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries and associates are recognised in other comprehensive income and are accumulated in the foreign currency reserve in equity. On disposal of a foreign operation, the cumulative translation differences are transferred to the profit or loss as part of the gain or loss on disposal.

Post employment benefits and short-term employee benefits

The Group provides post employment benefits through defined benefit plans as well as various defined contribution plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after its payment of the fixed contribution. The Group contributes to several schemes for individual employees that are defined contribution plans. Contributions to the plans are recognised as an expense in the period that relevant employee services are received.

Plans that do not meet the definition of a defined contribution plan are defined benefit plans. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plans have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as well as qualifying insurance policies. The liability recognised in the statement of financial position for defined benefit plans is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. Any movement in the net of plan assets and plan liability is included within other comprehensive income.

Management estimates the DBO annually with the assistance of independent actuaries. The estimate of its post retirement benefit obligation is based on standard rates of inflation and mortality. It also takes into account the Group's specific anticipation of future salary increases. Discount factors are determined close to each year-end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.

All post employment benefits expenses are included in employee benefits expense.

Liabilities for short-term employee benefits, including holiday entitlement are included in current pension at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

Leased assets

All leases are regarded as operating leases as the risks and rewards of ownership are not transferred. Payments made under leases are charged to profit or loss on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease.

Share options

All share-based payment arrangements granted that had not vested prior to 1 January 2006 are recognised in the financial statements. The Group operates a number of employee share schemes under which it makes equity-settled share-based payments to certain employees. None of the Group's plans feature any options for a cash settlement.

Where employees are rewarded using share-based payments, the fair values of employees' services are determined by reference to the fair value at the grant date of equity instruments issued by the Group. The fair value of these instruments (share options) is determined using the Black Scholes valuation model. The share-based payment is recognised as an expense in profit or loss, together with a corresponding credit to a share-based payment reserve in equity. This expense is recognisd on a straight-line basis based on the Group's estimate of the number of shares that will vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded in the share premium account.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Equity

Equity comprises the following:

·; "Share capital" represents the nominal value of equity shares;

·; "Treasury shares" comprise own shares in Brady plc purchased and retained by the Company;

·; "Share premium account" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue;

·; "Merger reserve" represents the merger reserve set up in relation to the accounting for the acquisition of Colplan Systems Limited in 2004 that was present under UK GAAP and exempt from reclassification on transition to IFRS;

·; "Merger relief reserve" represents the premium on shares issued as part of the acquisition consideration of other companies;

·; "Capital reserve" represents the capital reserve set up to account for shares redeemed or purchased wholly out of distributable profits that was present under UK GAAP and exempt from reclassification on transition to IFRS;

·; "Equity reserve" represents the reserve in relation to share options issued but not yet exercised;

·; "Foreign exchange reserve" represents the exchange difference on consolidation of investments in overseas subsidiaries; and

·; "Retained earnings" represents retained profits.

Treasury Shares

Equity shares in Brady plc held by the Company are classified as treasury shares. These shares are treated as a deduction from the issued and weighted average number of shares. The consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from Group equity until the shares are cancelled, reissued or disposed of. When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders. Distributions received on treasury shares are eliminated on consolidation.

4.  Segment 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 expenses and before exceptional items and taxation.

The tables below show an analysis of the results by business unit:

The year 2012 is the first year that the Group has presented its results by business unit. The chief operating decision maker of the Group does not analyse the net assets according to revenue type or business unit.

Revenue by geography

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

Countries where revenue represents more than 10% of Group revenues are detailed below:

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

Assets by geography

The Group had non-current assets (excluded deferred tax) outside of the United Kingdom at the year-end date as follows:

This reconciles to total non-current assets as follows:

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 under review by 1,368,455 (2011: 310,000).

In addition, the Company raised £17.97 million gross in March 2012 following the placing of 23,338,233 ordinary 1p shares at 77 pence per share, or £17.11 million net of fees.

In addition, the Company allotted 918,762 ordinary 1p shares during the year as part of the acquisition consideration of Navita in March 2012 and 675,951 ordinary 1p shares during the year as part of the acquisition consideration of syseca in February 2012.

7. 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 year. All earnings per share calculations relate to continuing operations of the Group. Separate calculations have been prepared related to the profit 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 year, 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 before and after exceptional items.

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. Under this basis, the adjusted earnings per share for 2012 increased to 5.94 pence per share (restated 2011: 5.50 pence per share to assume the same normalised 10% tax rate).

The reconciliation of average number of ordinary shares used for basic and diluted earnings per share is as below:

8. Exceptional items

9. Dividends

During the year Brady plc paid dividends of £1,206,000 to its equity shareholders (2011: £759,000). This represented a payment of 1.5 pence per share (2011: 1.4 pence per share).

The Directors propose the payment of a dividend in 2013 of 1.6 pence per share being approximately £1,290,000 (2011: 1.5 pence per share being approximately £1,189,000). As the distribution of dividends by the Company requires approval of the shareholders, no liability in this respect is recognised in the 2012 consolidated financial statements. No income tax consequences are expected to arise as a result of this transaction at the Group level.

10. 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:

The carrying value of goodwill is allocated to the following cash-generating units:

Management have considered all cash generating units separately when determining appropriate assumptions. The recoverable amounts for the cash-generating units given above were determined based on value-in-use calculations, at a level where there are largely independent cash inflows. Management prepares detailed ten year cash flow forecasts, based initially on the detailed 2013 operating budget which is then extended for a further nine years, then applies a discount rate in order to calculate the present value of such cash flows, which represents the recoverable amount. The discount rate used in the calculations was 12.7% being the Group's estimated weighted average cost of capital. The principal assumptions used in the forecasts have been increasing market penetration and pricing creating annual revenue growth rates of between 7% and 12% per annum and estimated growth in expenses in relation to the resources required to support the business unit's growth. The annual growth rates are based on market growth rates provided by external analysts, but reduced where considered prudent by management. The growth rates exceed the overall economic long-term average growth rates because this sector is expected to continue to grow at above-average rates for the foreseeable future. Any impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount and this impairment loss is used to reduce the carrying amount of any goodwill allocated to that cash-generating unit.

Key judgements and estimates are made in determining the value in use of the cash-generating units described above.

In the case of the Navita acquisition, the forecasted recoverable amount exceeds the carrying amount by £989,000. The key assumption used is annual revenue growth increasing from 7% per year to 10% per year over a four year period. Should this growth rate reduce by 1% per annum, the forecasted recoverable amount would create an impairment charge of £183,000. This high sensitivity is partially a consequence of the Group's forecasted revenues assuming a shift to a rental model. To mitigate any potential reduction in growth rate, the Group may consider selling up-front licences instead of rental agreements and has the potential to review the cost base to minimise any potential impairment charge. Other than this, management of the Group is not currently aware of any probable changes that would create an impairment charge.

11. Other intangible assets

Other intangible assets comprise the following:

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

The carrying value of Group intangible assets is allocated to the following cash-generating units:

The recoverable amounts for all of the cash-generating units given above were determined based on value-in-use calculations, at a level where there are largely independent cash inflows. The carrying value of the intangible fixed assets has been compared and justified by reference to the Group's forecasts for between five and ten years following the reporting date. Any impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount and this impairment loss is used to reduce the carrying amount of any goodwill allocated to that cash-generating unit.

Key judgements and estimates are made in determining the value in use of the cash-generating unit described above. The management of the Group is not currently aware of any probable changes that would necessitate changes in its key estimates.

12. Treasury shares

During the year the number of ordinary shares held in treasury has remained at 4,306. During the prior year the Company utilised 276,944 of the Company's own treasury shares to satisfy the granting of employee share options.

13. Acquisitions

There were three acquisitions completed during 2012.

Navita AS

On 9 March 2012 the Group acquired the entire issued share capital of Navita AS ("Navita"), a company incorporated in Norway, with subsidiary operations in US, Canada and the UK. Navita is a leading provider of systems to the energy markets, focussing on physical power and carbon emission trading and has clients based in Europe and North America.

The net assets and liabilities acquired were as follows:

The total consideration of £17,197,000 net of cash acquired of £1,601,000 and debt acquired of £451,000 was £16,047,000. The cash consideration paid in the year of £16,370,000 net of cash acquired of £1,601,000 but before adjusting for the debt acquired of £451,000, was £14,769,000.

Included in the fair value adjustment to liabilities was a reduction of £133,000 in relation to reorganisation costs that were accrued as a direct consequence of the acquisition of Navita by the Company, which under IFRS are required to be expensed post acquisition. A total of £388,000 has been expensed as exceptional reorganisation costs.

Included in the fair value adjustment to liabilities was a £124,000 increase in deferred income in order to align Navita's revenue recognition policies with those of the Group.

Trade and other receivables included trade receivables of £1,914,000 net of a doubtful debt provision of £54,000, all of which is anticipated to be collectible.

Following a detailed review of the fair value of assets and liabilities acquired, in accordance with IFRS3 Business Combinations the Group has recognised two intangible assets totalling £7,645,000 which are client contracts and software, both of which are being amortised over their estimated economic lives of ten years. The client contracts have been valued at £3,033,000 and the software for future client resale has been valued at £4,612,000, replacing the on balance sheet capitalised development costs.

Goodwill of £11,108,000 represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill arising on the acquisition is largely attributable to the incremental sales synergies anticipated to be associated with being part of the Group and the ability to sell and cross sell with a larger combined sales force.

As part of the acquisition, the Group agreed to adjust consideration against working capital above or below an agreed threshold that was retained in the business at completion. Following a completion accounts verification process, an amount of £378,000 was agreed to be repaid by the vendors of Navita in relation to a shortfall in working capital. This amount was received in August 2012.

From the date of acquisition to 31 December 2012, Navita contributed £6,785,000 to revenue, £750,000 to profit before taxation and £510,000 to the Group's net operating cashflows. In the last financial year, being the year ended 31 December 2011, Navita made a profit before taxation of £18,000. If Navita had been acquired as of 1 January 2012, it would have contributed £9,116,000 to revenue, negative £2,747,000 to profit before taxation and £1,617,000 to the Group's net operating cashflows.

Transaction costs of £383,000 in related to this acquisition were expensed as exceptional transaction costs.

syseca AG

On 10 February 2012 the Group acquired the entire issued share capital of syseca AG ("syseca"), a company incorporated in Switzerland. syseca provides up-to-date electricity physical trading capabilities and connectivity to most European Transmission System Operators (TSOs) and has clients within Europe.

The net assets and liabilities acquired were as follows: