Brady Regulatory News (BRY)

Brady plc ("Brady" or the "Group")

PRELIMINARY RESULTS

For the year ended 31 December 2016

Brady plc (BRY.L), a global provider of trading, risk management and settlement solutions to the energy, recycling and commodities sectors, is pleased to announce its unaudited preliminary results for the year ended 31 December 2016.

Operational Highlights

· Implemented a 'one company' approach, led by an Executive Board that has started to build our new strategy

· Reorganised sales functions into a Value Enablement team, focussed on delivering value to new customers, and an Account Management team focused on existing customers

· Reorganised the Development team with focus on Group priorities, rather than local

· Created a Product team, responsible for all product lines

Financial highlights

· Total revenue increased by 11% to £30.3 million (up 2% in consistent currency)

· 1% organic revenue growth (7% decline on consistent currency basis - mainly as a result of the reduction in license sales)

· Total recurring revenue grew by £3.6 million or 24% (by £2.1 million or 14% at consistent currency rates)

· Operating profit before exceptional items of £0.5 million up £1.5 million from £1.0 million loss in 2015

· Adjusted EBITDA* increased 85% to £4.5 million from £2.5 million

· Reported loss after tax of £1.9 million (2015: £1.7 million loss)

Outlook

· Strong position, contracted revenues of £24.0 million for 2017 and £7.3 million net cash

· Continued investment in development and focus on recurring revenues

Ian Jenks, Chairman, commented,

"The improvement in underlying profitability reflected in the increase of £2m in Adjusted EBITDA, reflects the full year impact of last year's cost savings. In order to drive further improvements, we have removed the Commodities, Energy and Recycling business units, and now have in place a 'one company' approach, led by an Executive Board, supported by an Operating Board, organised by function, with global function-based heads now in place.

We expect that this 'one company' approach, together with the substantial investment in developing the organisation and products, and the change in the business model, will deliver tangible results over the coming years. We anticipate both closer alignment with our clients, and target market segments. The Brady transformation is designed to deliver greater customer success through quality software and services and by focusing on areas of value best addressed by software and data driven insights in our target markets."

* Measured as operating profit excluding depreciation, amortisation, and exceptional items

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 to back office financials and treasury settlement, for energy, refined, unrefined and scrap metals, soft commodities and agriculturals.

Brady has 30 years' expertise in the commodity markets with some 400 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

This is my first preliminary results announcement since my appointment as Executive Chairman. The last year has been one of transition as we start to put in place the people, products, processes and business model that can scale to meet the demands of our market and allow us to grow efficiently and profitably.

In 2016 our revenues were £30.3 million up £3m due to the impact of exchange rates and the energycredit acquisition in the year. Our Adjusted EBITDA before exceptional items was £4.5 million up from £2.5 million in 2015 - primarily as a result of realising the annualised cost savings we had initiated towards the end of 2015.

Operating profit before exceptional items was £0.5m compared to a £1.0m loss in 2015. The retained loss for the year after exceptional items and tax was £1.9m compared to £1.7m in 2015.

There remains a lot to do as we look forward to 2017. We start the year with committed recurring revenues and contracted Development and Services revenues of approximately £24.0 million and Cash on hand of £7.3 million. We are well placed to execute.

This year we will be making a substantial investment in developing the organisation, products and business model. In addition, we expect to deliver an increase in our recurring revenue base. While this will impact our cost base and near term profitability it will create the foundations to deliver sustainable growth, profitability and a reduction in our operational gearing from 2018 onwards.

When I took over as Executive Chairman in September we had a focus on license-based contracts which had created a sales-led culture to the detriment of long-term customer relationships and product strategy. The Group was also organised into small business units, based on a series of acquisitions, each focussed on their own objectives which were not necessarily aligned with those of the wider Group. Focusing on licence sales and divisional objectives meant we were not organised to take advantage of our scale to deliver quality products efficiently to our customers.

The plan we put in place in September 2016 to respond to these issues was to:

· Work with our customers to agree detailed plans to catch up on their delivery requirements;

· Integrate the business units into one company, organised by function, with one set of objectives;

· Componentise our products;

· Review the strategic plan.

So, what have we done? We have removed the Commodities, Energy and Recycling business units, and now have in place a 'one company' approach, led by an Executive Board comprising myself, Elizabeth Sipiere (COO) and Martin Thorneycroft (CFO) supporting an Operating Board, that is organised by function, with global function-based heads now in place.

We have reorganised our sales group into a Value Enablement team focussed on new customers, where we can add value by providing a solution rather than just selling a product, and an Account Management team focused on taking care of our substantial customer base. In both cases, we are moving our business model away from a focus on licence sales towards recurring fees. In the long term this will allow us to better match our revenues with our costs and prepare us to move into selling our software as a service.

Our Development team has been re-structured into one team with its priorities based on Group priorities, rather than local divisional priorities. Our development capacity has increased with our new development centre in India. We are adopting common systems and processes across the team. We have also agreed plans with our customers to deliver their requirements, we have a development backlog to clear. The Account Management team will make sure we stay much closer to our customers.

We have created a Product team, responsible for all product lines. We currently support ten different product platforms, with some competing offerings. We need to refresh and consolidate our existing product platform architecture. We are moving towards a single platform based on functional components connected by the Brady Framework. This will also allow us to deliver solutions based on a combination of our components, integrated with Customer components and third party Applications and place Brady at the heart of the solution. We are prioritising the component development with our existing customers.

The Executive Board have also started to build our new strategy and, at a high level, this is to provide value to our customers by the provision of software solutions to automate business processes and information that enables them optimise those processes.

People

There's a lot of change happening in the business and changes in the way we work and our culture. At the centre of this change is our great team of people and key to our success is putting them first in everything we do. We are moving from a top down culture with centralised control to a culture where the Executive Board supports and empowers the Operating Board to support their teams to deliver the performance, innovation and ideas that will fuel our growth. It is also a culture where we all hold each other to the highest standards of performance. To do this we need to have open, honest and transparent communication. I'm delighted that Jeff Wellstead, a HR consultant, is working with us to help with this transformation.

I would like to thank our directors and employees for their efforts during a very hectic year. In particular, I would like to thank the directors who left the Board during the year: Paul Fullagar, Gavin Lavelle, Robert Brady and Peter Harverson for their stewardship over many years. I would also like to welcome Elizabeth Sipiere and Carmen Carey who have joined the Board.

The commitment and hard work of our staff is very much appreciated and their skill, talent and dedication will be crucial in delivering customer success.

Looking ahead

The priorities for 2017 are:

· Complete our strategic plan

· Complete our company re-organisation

· Accelerate the move of our business model towards recurring fees

· Catch up on our technical and delivery backlog

· Re-architect our product

· Put our people first

As we leave 2016 there is a lot to do but we are excited and well placed to execute.

Ian Jenks

Chairman

Operating review

Over the past year, we have reviewed and amended our strategy and undergone a significant internal re-organisation. From a trading perspective, we have signed 14 new customers; four for Commodities products; and 10 for Recycling products. Cloud deployment continues to be the favoured deployment method of new clients with 13 of the above new customers being deployed via the cloud.

Strategic Review

During the last quarter of 2016 we initiated a strategic review and while it is not fully completed it is far enough advanced to provide a summary below.

Our research has shown that our markets are changing. Our customers are demanding more than trading and risk management systems. They seek solutions and software that supports the business and allows it to enhance margin in a world of change.

There are three cornerstones to our strategy:

· Componentisation

To meet the market changes Brady will extend our software offerings using web enabled data service architecture (the Brady Framework). This move to service components and big data, data analytics and other tools, enables automation, intelligence and integration and is a hallmark of technology today. It will enable Brady to extend our existing software assets and customer's legacy installations to deliver change and value.

· Customer Success

Customer success is at the heart of everything we do. Our aim is to ensure our Customers' Success by helping customers maximize the value of installed and older solutions, while extending software and opening new markets and trading partners using Brady components.

· Partners

We know our customers' success will come from Brady software and other software and services. Our new Partner strategy is designed to promote integration with other parties' software as well as joint delivery with partners and customers to extract greater value from our software. In time, it will also extend our reach into countries where we do not have a presence or local knowledge. Included within our definition of partners are market institutions where we intend to develop and extend our working relationships.

Functional transformation

We have re-organised the group from a divisional structure to a global functional structure, effective from 1 January 2017. The drivers behind this change were to enable the group to focus on customer success and to scale efficiently.

The new global functions are:

· Customer success

Headed by Robert Jardine this function comprises of account management, services and support. This enables us to spend time with customers to understand their needs and build configurable components. In the software industry, it is common for software to be bought but only a percentage of the software is used. Our customer success focus will deliver new service offerings to increase the value customers get from our software and its latest releases.

· Development

Headed by Jon Hobbs this is a pool of resources operating an agile development process, focused on the demands placed on us by our Customers' Success and the strategic inputs of our deeply experienced product managers. This has enabled us to create a team of over 100 developers to give us real capacity to respond to the market demands and to scale efficiently.

· Product

Headed by Brian Collins this function determines the product strategy, prioritises the workflow into development with detailed business requirements. Key inputs to determining the strategy will come from various sources including customer feedback from the customer success function, market intelligence, group strategy and partners.

· Value Enablement

Jointly headed by Scott Hestenes and Elizabeth Sipiere this function is responsible for working closely with key players to understand the value we can provide and add new customers to the Brady solutions.

Commodity products

During 2016 four new customers were signed (2015: four). Two of these were in the US, one in Asia, and one in Europe. In addition, there was also a significant licence renewal. Brady has retained its leading position across all metal products in the 2016 vendor perception study and signed three new Cloud deals with metal trading companies in the period. The ability to offer end to end Cloud deployed solutions, covering soft commodities, ores, concentrates, refined and precious metals and scrap is becoming a key differentiator from the competition. Our Cloud solutions allow customers a cost efficient and quickly deployed alternative to traditional client installed models. During the year, we also continued to invest in the development of our concentrates functionality.

Energy products

Brady continues to be at the forefront of Energy market changes. The market harmonisation projects in the Nordics are now due to be implemented during 2017, with Brady's solution well advanced to enable companies to participate in the market. As an existing supplier to the Irish market, Brady is also deeply involved with the Integrated Single Electricity Market (I-SEM) project. We won our first customer contract in relation to I-SEM in 2016 as well as the extension of our work within EirGrid itself.

In January 2016, the energycredit business and product was acquired. The first phase of integration with the existing energy solution suite has been completed allowing existing customers to take advantage of this complimentary functionality as an add-on to their existing ETRM solution.

Recycling products

Eleven new customers were signed in 2016 (2015: one) of which ten were on our cloud platform. The ScrapRunner handheld container management software has now been developed for use on Android devices and will be available to customers in the second quarter of 2017.

Technology

The ability to provide customers with a solution, rather than a standard piece of software, is a fundamental part of our future strategy. The Brady Framework is key to this as it allows components to be combined and utilised as required by our customers and allows us to work with partner technologies to provide our customers with a flexible and extensible eco-system. During 2016 considerable investment was made in expanding and developing the capabilities of the Brady Framework and this development will continue in 2017 and beyond.

Our Services Orientated Architecture ('SOA') inventory was increased during 2016 to 31 by the addition of span margining and analytics, the latter of which was launched as Brady Analytics in September at the customer advisory board.

In 2017 and in alignment with our strategy we expect most new developments to be built as components utilising the Brady Framework and we will be significantly extending existing components.

Summary and outlook

Market conditions remain challenging and while we have seen a small recovery in some commodity markets, metal prices remain low and US steel production remains well below capacity.

For 2017 we will continue to meet demand for new software from our existing commodities customers who are focusing on investment in automation and controlling their businesses. In key areas, Brady will be co-investing with one or more customers to create new components for the market.

We will be working with our London Metal Exchange ('LME') member customers to implement LME Smart and later, when the LME publishes the dates, on LME Precious.

In Energy, activity in the Nordics and Ireland will continue during 2017 as the new market structures are implemented.

Our transformation will begin to deliver results. We anticipate closer alignment with our clients and target market segments. The Brady transformation is designed to deliver greater customer success through quality software and services and by focusing on areas of value best addressed by software and data driven insights in our target markets.

Elizabeth Sipiere

Chief Operating Officer 

Financial review

Group trading performance

In order to enable a better appreciation of the business performance in the underlying currencies Brady has provided details of revenues in both actual and consistent currency. Consistent currency numbers are calculated by translating the 2016 results at the same exchange rate as those used in the 2015 results.

Revenue mix

The revenue composition is summarised in the tables below:

At consistent currency:

Total revenue increased by 11% and increased by 2% in consistent currency. Organic growth in revenue, after adjusting for both the acquisition of ScrapRunner in 2015 and energycredit in 2016, was 1% (2015: reduction of 12%) and a reduction of 7% in consistent currency. The reduction in revenue was primarily a result of the reduction in licence revenue in the year.

Total recurring revenue grew by £3.6 million or 24% or by £2.1 million or 14% at consistent currency rates. Organic recurring revenue grew by £0.8 million (or 5%), from £15.0 million (2015) to £15.8 million (2016). The acquisition of energycredit in January 2016 added £1.1 million to recurring revenue in the Energy business unit.

Services and development revenues increased 12% to £7.8 million from £6.9 million. In consistent currency, services and development revenue increased 7% to £7.4 million from £6.9 million.

Trading performance by business unit (before exceptional items)

The revenue and contribution by business unit, prior to any allocation of central and shared costs and amortisation of intangible assets, are summarised below.

In consistent currency:

Brady Commodities

Revenue increased 3% in 2016 to £12.8 million compared to £12.4 million in 2015. In consistent currency, the decrease was 2% from £12.4 million (in 2015) to £12.1 million (in 2016). The contribution margin was 33% (2015: 29%), reflecting the improvement in efficiency over the year.

Brady Energy

Revenues increased 17% in 2016 to £12.5 million compared to £10.8 million in 2015. However, excluding the impact of the energycredit acquisition, revenues were flat. The contribution margin was 17% (2015: 26%), because of less licence sales than in prior year.

Brady Recycling

Total revenue increased 17% in 2016 to £4.9 million compared to £4.2 million in 2015. After adjusting for the impact of Scraprunner acquired in September 2015, revenues were broadly flat. Organic revenues declined by 13% in consistent currency. The contribution margin was 12% (2015: 2%), reflecting efficiencies in the year.

Gross margin

The overall gross margin remained consistent at 61% (2015: 60%).

Profitability

Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) before exceptional items increased to £4.5 million (2015: £2.5 million).

Operating profit before exceptional items and tax increased to a profit of £0.5 million (2015: £1.0 million loss). Profit after exceptional items after tax increased to a loss of £1.9 million (2015: £1.7 million loss).

Research and development expenditure

Total research and development spend amounted to £6.2 million (2015: £6.7 million). Of this, £4.7 million was expensed (2015: £4.7 million) and £1.5 million (2015: £2.0 million) was capitalised. Capitalised development which is referred to internally within Brady as strategic software development (SSD) represents large strategic developments of either significant new modules or functionality. These projects are selected and approved by the Board as part of the business planning and budget process. The largest single capitalised project in 2016 was £0.6 million in respect of the development of a concentrates module for the Fintrade product. This allows a customer to trade refined and unrefined metals, concentrates, raw materials, softs and agricultures all on one platform and gives Brady a unique position in the market. SSD for 2017 is expected to be approximately £2 million.

Foreign exchange rates

Foreign exchange rates have moved significantly between 2015 and 2016 for several of the currencies in which Brady both generates revenue and incurs costs. The most significant currency pairs are: sterling and the US dollar, sterling and the Norwegian krone and sterling and the Swiss franc. In terms of average foreign exchange rates applied to the income statement, sterling weakened 12% against the US dollar, 10% against the Swiss franc and 9% against the Norwegian krone.

Exceptional items

The exceptional item comprises three items:

· Functional transformation costs totalling £0.6 million mainly comprising redundancy costs to align the organisational structure with the new strategy of the group. A further £0.6 million is expected to be incurred in 2017 as the transformation initiatives are completed. 

· The Group has an overseas tax enquiry in progress relating to 2011, 2012 and 2013 prior years' transfer pricing methodology. The group has incurred professional fees of £0.3 million and has provided an additional £0.4 million current tax charge in relation to this in the year. In addition, a deferred tax asset of £0.5 million representing the value of tax losses in this jurisdiction has been written off.

· Corporate finance and legal costs associated with the acquisition of energycredit, totalling £0.3 million.

Income tax

The overall tax charge for the year was £1.2 million (2015: £0.3 million), the primary reason for the increase in the charge relates to the tax enquiry explained above.

Earnings and dividends

After including the exceptional charges, the loss before tax decreased to a loss of £0.6 million (2015: £1.4 million loss) and loss after tax increased to a loss of £1.9 million (2015: £1.7 million loss).

The weighted average number of shares in issue increased to 83.1 million (2015: 83.0 million). Basic and diluted loss per share was 2.23 pence per share (2015: loss per share of 2.09 pence). 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 15%, increased to 2.4 pence per share (2015: 0.97 pence per share).

The Board does not propose a dividend for the year.

Share issues

100,000 (2015: 1,637,003) share options held under the Company's share option schemes were exercised. The exercise proceeds following the exercise of these share options were £47,000 (2015: £720,000).

Treasury shares

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

Acquisitions

On 4th January 2016, the Group bought 100% of the issued share capital of Raft International Limited to acquire the energycredit product and an Indian development centre. The development centre has been re-assigned to work on group strategic software development projects. The purchase price was £0.3 million. The fair value of the assets and liabilities acquired comprised: intangible assets £0.4 million, trade and other debtors £0.4 million, trade payables and deferred revenue £1.0 million; deferred tax £0.1 million. Goodwill amounted to £0.6 million.

Revenues in the period from acquisition to 31 December 2016 were £1.9 million and profit before tax was £0.1 million.

Balance sheet

The Group continues to retain a strong balance sheet, with significant cash reserves and no debt.

Non-current assets

Goodwill increased to £21.7 million from £17.2 million. This is the net movement comprised of an addition of £0.6 million for the energycredit acquisition and foreign exchange movements of £3.9 million.

Acquired software increased to £5.4 million from £4.4 million and acquired client contracts increased to £2.6 million from £2.2 million as a result of additions from the energycredit acquisition less amortisation during the period and foreign exchange movements on translation.

As required by IAS38 Intangible assets, the Group capitalised £1.5 million (2015: £2.0 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 £6.3 million (2015: £6.0 million).

The deferred tax asset of £0.5 million previously recognised in relation to historic overseas tax losses has been offset against current taxable profits.

Current assets

Trade and other receivables increased to £7.3 million (2015: £7.0 million), included in this, accrued income decreased to £1.1 million (2015: £1.4 million). Accrued income arises principally on consulting and professional services revenue which is typically invoiced in the month following provision of the service. Additionally, accrued income can arise on large contracts based on negotiated invoice terms.

Current liabilities

Trade and other payables increased to £12.7 million (2015: £10.8 million) included in this, deferred income increased to £6.9 million (2015: £5.4 million). Deferred income arises principally as a consequence of payments received in advance of revenue recognition with respect to both rental and licence revenues.

Cash and cash flow

Operating cash generation was £2.3 million (2015: £1.9 million).

The Group had investment outflows of £2.5 million (2015: £3.7 million), as spending on acquisitions was lower in 2016 than the prior year.

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, is an important requirement for the Group's large global clients and potential clients looking to contract with Brady.

Martin Thorneycroft

Chief Financial Officer

Consolidated income statement

For the year ended 31 December 2016

The accompanying notes are an integral part of this preliminary financial information.

Consolidated statement of comprehensive income

For the year ended 31 December 2016

The accompanying notes are an integral part of this preliminary financial information.

Consolidated statement of changes in equity

For the year ended 31 December 2016

A reconciliation of the components of Other reserves is given in note 9.

The accompanying notes are an integral part of this preliminary financial information.

Consolidated statement of financial position

As at 31 December 2016

The accompanying notes are an integral part of this preliminary financial information.

Consolidated statement of changes in cash flows

For the year ended 31 December 2016

The accompanying notes are an integral part of this preliminary financial information.

1 General information

Brady plc ("the Company") and its subsidiaries (together, "the Group") provides trading and risk management software to the global commodity and energy markets.

The Company is a public limited company which is listed on the Alternative Investment Market ("AIM") of the London Stock Exchange (BRY) and is incorporated and domiciled in the United Kingdom. The address of its registered office, which is also its principal place of business, is 2A Southwark Bridge Road, London, SE1 9HA.

The Group has its main operations in the UK, Switzerland, Norway, USA, Singapore and India and sells mainly in Europe, North America and Asia Pacific. The Group legally consists of 20 companies headed by Brady plc (UK).

The preliminary financial information has been approved for issue by the Board of Directors on 13 March 2017.

2 Significant accounting policies

Alternative performance measures

The Group uses alternative (non-Generally Accepted Accounting Practice ('non-GAAP')) performance measures of 'Adjusted EBITDA' and 'Adjusted diluted earnings per share (EPS)'. These measures are not defined within the International Financial Reporting Standards (IFRS) and, therefore, these measures as defined by the Group may not be comparable with similarly titled measures used by other companies. The Directors do not regard these measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with IFRS. The Directors present these measures in the financial statements in order to assist investors in their assessment of the trading performance of the Group. Adjusted EBITDA and Adjusted diluted EPS exclude specific items that are considered to hinder comparison of the trading performance of the Group's businesses either year on year or with other businesses and are used for internal performance analysis and in relation to certain employee incentive arrangements. The measures are explained as follows:

(a) Adjusted EBITDA: The Group calculates this measure by making adjustments to exclude certain items from operating profit namely: amortisation or impairment of goodwill and other intangible assets, depreciation and exceptional items such as acquisition, integration or reorganisation costs that meet the criteria to be adjusted.

The criteria for the adjusted items in the calculation of adjusted EBITDA is operating income or expenses that are material and either arise from an irregular and significant event or the income/cost is recognised in a pattern that is unrelated to the resulting operational performance. The calculation of this measure is shown on the Consolidated Income Statement.

(b) Adjusted earnings per share ('EPS') The Group calculates this measure by dividing adjusted profit after tax by the weighted average number of shares in issue and the calculation of this measure is disclosed in Note 6. The tax rate applied to calculate the tax charge in this measure is a normalised tax rate for the year which is 15% (2015: 15%) which results in a comparable tax charge year on year. The Group also calculates this measure by excluding amortisation on acquired intangible assets, share-based payments charge and exceptional items such as acquisition, integration or reorganisation costs from the measurement of profit for the period.

The adjusted EPS information is considered to provide a fairer representation of the Group's trading performance.

Segment reporting

IFRS 8 requires a "management approach" under which information in the financial statements is presented on the same basis as that used for internal management reporting purposes. Segment results are reported according to the internal management reporting structure at the reporting date.

During the year, the Group was organised for reporting purposes into three business units comprising different market sectors within the ECTRM market and each business unit is able to operate globally, being Commodities, Energy and Recycling. The profit measure used by the Board was business unit contribution, which was 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. All inter-segmental transfers were carried out at arm's length prices. In 2017, segment reporting will reflect the new management structure once the functional transformation is completed.

The internal management accounting information has been prepared on an IFRS basis but has a non-GAAP "Adjusted EBITDA" as the primary measure of profit for the overall group and this is reported on the face of the income statement.

Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the group. They are material, non-recurring and incremental items of income or expense that have been shown separately due to the significance of their nature or amount.

3 Segment information

3.1 Results by operating segment

3.2 Revenue by nature

3.3 Geographical areas

The Group's revenue from external customers and information about its non-current assets (excluding goodwill and deferred tax) by geography is detailed below:

Revenues from external customers in the Group's domicile, the UK, as well as its major markets, EMEA, Americas and Asia Pacific, have been identified on the basis of the customer's geographical location. Non-current assets are allocated based on their physical location.

3.4 Information about major customers

There were no customers in 2016 or 2015 who contributed 10% or more of the Group's revenue.

4 Exceptional items

Acquisition costs

During 2016, the Group incurred acquisition costs, mainly comprising professional fees, totalling £253,000 in relation to the energycredit acquisition.

Functional transformation costs

During 2016, the Group incurred functional transformation costs totalling £626,000 mainly comprising redundancy costs to align the organisational structure with the future strategy of the Group.

Overseas tax enquiry

The Group has an ongoing tax enquiry into the prior years' transfer pricing methodology of an overseas subsidiary. During 2016, the Group incurred professional fees of £280,000 and provided an additional £969,000 tax charge in relation to the enquiry.

5 Income tax

6 Earnings per share (EPS)

6.1 Basic and diluted EPS

Basic earnings per share is calculated by dividing profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the effects of all dilutive share options outstanding at the end of the year. Options have no dilutive effect in loss-making years, and hence the diluted loss per share for the year is the same as the basic loss per share.

6.2 Adjusted diluted EPS

7 Share capital and premium

The Company has one class of ordinary shares which carry no right to fixed income. The share capital of Brady plc consists only of fully paid ordinary shares with a nominal value of £0.01 per share. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders' meetings of Brady plc.

7.1 Share issues

During the period, the Company issued 100,000 shares as a result of share options exercised with a weighted average exercise price of £0.47 per share for total cash consideration of £47,000.

8 Treasury shares

Treasury shares comprise own shares in Brady plc purchased and retained by the Company:

9 Other reserves

The following table shows a breakdown of the balance sheet line item 'other reserves' and the movements in these reserves during the year.

10 Post balance sheet events

There are no post balance sheet events to disclose.

11 Statement by directors

While the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRSs') as adopted by the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRSs. The accounting policies adopted in this preliminary announcement are consistent with the Annual Report for the year ended 31December 2016.

The financial information set out above, which was approved by the Board on 13 March 2017, is derived from the full unaudited Group accounts for the year ended 31 December 2016 and does not constitute the statutory accounts within the meaning of section 434 of the Companies Act 2006.

The Board of Brady plc approved the release of this preliminary announcement on 13 March 2017.

The Annual Report for the year ended 31 December 2016 will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. The report will also be available on the investor relations page of the Group's website. Further copies will be available on request and free of charge from the Company Secretary.