Last checked at 18 May 2011 07:00
For Immediate Release 18 May 2011
SANDERSON GROUP PLC
Interim Results for the six months ended 31 March 2011
Positive trading momentum continues
Sanderson Group plc ("Sanderson" or "the Group"), the software and IT services business specialising in the multi-channel retail and manufacturing markets in the UK and Ireland, announces Interim Results for the six month period ended 31 March 2011.
Commenting on the results, Chairman, Christopher Winn, said:
"Whilst the Group's trading has continued to be impacted by the slow pace of recovery in the UK economy, improvements in the Group's competitive market position driven by the introduction of new products and services, have resulted in a continued recovery from the financial year ended 30 September 2009.
"Improved trading momentum has been maintained with pre-contracted recurring revenues continuing to grow and with both gross margin and order book values increasing. As with the previous financial year, we expect the benefits of the larger order book to be reflected in the result for the second half year, during which most of the projects are scheduled for implementation and delivery."
Highlights - Financial
§ Revenues of £13.1m (2010: £13.3m).
§ Operating profit of £0.8m (2010: £0.7m).
§ *Adjusted operating profit increased to £1.5m (2010: £1.4m).
§ Basic earnings per share of 0.7p (2010: 0.01p).
§ *Adjusted basic earnings per share of 2.3p (2010: 1.7p).
§ Cash generated from operations amounted to £1.7m (2010: £1.8m).
§ Net debt at period-end further reduced to £7.2m (2010: £9.0m).
§ Interim dividend declared of 0.3p per share (2010: 0.25p).
*Before amortisation of acquisition-related intangibles, exceptional costs, impairment of goodwill and share-based payment charges.
Highlights - Operational
§ Order Book at period-end increased to £3.3m (2010: £3.0m), with much of it scheduled for delivery in second half of current financial year.
§ Gross margins up 3.5% reflecting delivery of more proprietary IPR and other owned services
§ Recurring revenues rose to £7.1m (2010: £6.7m), representing 54% of total revenues (2010: 51%).
§ Introduction of new products and services continues with solutions based on Software as a Service ("SaaS") and Cloud delivery models launched during the period.
§ Green IT product suite based on power optimization successfully launched and currently trialing with large retailer.
On current trading and prospects, Mr. Winn, added:
"Whilst the Board remains cautious with regard to the general economic outlook for the UK manufacturing and retail markets in which Sanderson operates, the Group has built and maintained a good level of business momentum over the past two years. Its improved competitive market position, latest products and strong order book give the Board confidence regarding the outlook for the financial year ending on 30 September 2011."
Enquiries:
Christopher Winn, Chairman Telephone: 024 7655 5466
Adrian Frost, Finance Director
Paul Vann, Winningtons Financial Telephone: 0117 985 8989 or 07768 807631
Mark Taylor, Charles Stanley Securities
(Nominated Advisor) Telephone: 020 7149 6000
SANDERSON GROUP PLC
Interim Results for the six months ended 31 March 2011
Chairman's statement
Introduction
Whilst the Group's trading has continued to be impacted by the slow pace of recovery in the UK economy, improvements in the Group's competitive market position driven by the introduction of new products and services, have resulted in a continued recovery from the financial year ended 30 September 2009.
Improved trading momentum has been maintained with pre-contracted recurring revenues continuing to grow and with both gross margin and order book values increasing. As with the previous financial year, we expect the benefits of the larger order book to be reflected in the result for the second half year, during which most of the projects are scheduled for implementation and delivery.
The trading results for the six month period to 31 March 2011 show revenue of £13.1m (2010: £13.3m). Gross margin increased by 3.5% to 70.6% (2010: 67.1%) and operating profit before the amortisation of acquisition-related intangibles and before the charge in respect of share-based payments improved to £1.5m (2010: £1.4m).
The Group has continued to manage working capital efficiently and prudently. Cash generated from operations in the six months to 31 March 2011, amounted to £1.7m (2010: £1.8m). Continued strong cash generation has facilitated a further reduction in bank debt, with net debt at 31 March 2011 falling to £7.2m (2010: £9.0m). In the past three years, since its peak at 31 March 2008 of £12.5m, the Group's net debt has reduced by over forty per cent. The Board anticipates further significant reductions in future periods.
Business review
Sanderson provides a wide range of software solutions and services to customers in the multi-channel retail and manufacturing markets. These solutions primarily comprise of the Group's own proprietary software often integrated with other market-leading products, which are installed, supported and serviced by Sanderson staff. Since the onset of the recession the Group has accelerated the introduction of new products and services. These include Business Assurance, Factory Automation, latest etailing and ecommerce software, a suite of Green IT solutions and most recently, offerings based on 'Software as a Service' ("SaaS") and Cloud delivery models. The latest release of the Unity software suite for manufacturing markets has been well received.
A cornerstone of the Sanderson business model is the high proportion of annual pre-contracted recurring revenue consisting of software licences, support contracts and increasingly, managed services. In the period to 31 March 2011, recurring revenues grew by 6% to £7.1m (2010: £6.7m) representing 54% of total revenues (2010: 51%).
Notwithstanding the challenging trading conditions in the UK economy, the Group has continued to build a better level of trading momentum. The Group's competitive market position has been significantly improved by new product introductions, the delivery of a cost-effective, quality service, and increased investment in sales and marketing.
Sanderson has continued to focus on supplying customers with value for money solutions offering a compelling return on investment. Enhancements to existing systems are targeted at providing customers with tangible benefits such as cost savings and business efficiencies. The latest versions of the Group's software products incorporate features which address both regulatory and legislative compliance whether for the Payment Card Industry in Retail or Food Standards and Traceability in Food Manufacturing, as well as latest technologies enabling 'voice picking' in warehousing and distribution. Whilst overall sales at £13.1m were marginally lower than the previous period, gross margin improved by 3.5% reflecting the delivery of more of the Group's proprietary IPR and other owned services to customers. The Group gained 13 new customers during the period, compared with 15 in the comparative period to 31 March 2010. The order book has grown by 10% to £3.3m at 31 March 2011 (2010: £3.0m) and this provides a good level of confidence for a satisfactory trading performance for the full year, as most of this order book is scheduled for delivery by the end of September 2011.
Review of multi-channel retail
The Group provides end-to-end and comprehensive solutions to businesses operating in retail, catalogue, mail order, fulfilment logistics, wholesale distribution markets and to those with an online sales presence. Revenues derived from multi-channel retail operations were £10.1m (2010: £10.2m). Activity levels have generally been good with the multi-channel business which addresses the wholesale distribution market being particularly active. There has also been a noticeable improvement in the level of activity from smaller retailers.
Within the suite of retail software, the Group has developed a new hospitality and catering module, which utilises the latest tablet PCs and wireless technology to enable customers to achieve savings and efficiencies in catering management. Salford Royal NHS Foundation Trust has achieved significant savings and both the Bradford Teaching Hospitals NHS Trust, as well as, Whipps Cross University Hospital NHS Trust have now adopted the Sanderson system. The Group is currently trialling its Green 'Power Optimisation System' at a large retailer and early indications are that annual power savings of around £25 per till can be achieved.
A total of eleven new customers were gained in the period (2010: 11 new customers) and included Shaws The Drapers, O'Reillys - The Sweet People and Yorkshire Trading Company. The average contract value was £111k compared with £156k in the previous year and £60k two years ago. Additionally, large orders were gained from a number of existing customers including Wilkinson, Lakeland and English Heritage.
Review of manufacturing
The Group's manufacturing business covers the provision of comprehensive IT solutions to manufacturers who operate primarily in the engineering, plastics, aerospace, electronics, print and food process sectors. UK manufacturing was seriously affected during the recession but has experienced a marked recovery over the last 18 months and the Group has benefited from this recovery. Whilst revenue was relatively flat at £3.0m (2010: £3.1m), the division experienced a surge in orders for its latest products in March and enters the second half of the financial year with a strong order book worth £860k, 88% ahead of the March 2010 order book of £457k.
Two new customers were gained in the period (Bio Health Pharmaceuticals and Gardners), compared with four new customers in the whole of the previous year, which ended 30 September 2010. Recurring revenues continue to be strong, accounting for 58% of total revenue and the margin from this revenue stream covers 82% of divisional overheads.
Balance sheet
The continued reduction in the level of Group debt is a primary focus for management and improved trading supported by good cash generation resulted in the level of net debt falling to £7.2m (2010: £9.0m).
Strategy
The Group's concentration on the core markets of multi-channel retail and manufacturing ensure a total focus on developing specialist solutions to customers and prospective customers in these sectors. The Group continues to accelerate the development and introduction of new products across its markets and this has improved the Group's market competitiveness. We intend to continue to deliver an improved financial performance, which will ensure the further reduction of net debt.
Dividend
Whilst recognising the need to reduce debt, the Group is committed to improve dividend levels and an interim dividend of 0.30 pence per share (2010: 0.25 pence) will be paid on 19 August 2011 to shareholders on the Register at the close of business on 22 July 2011.
Management and staff
In total, the Group employs around 270 staff, most of whom have a high level of experience in the specialist markets which the Group addresses. The commitment of staff to the development of the Sanderson business is crucial and we would like to thank all of our staff for their support and dedication.
Outlook
Whilst the Board remains cautious with regard to the general economic outlook for the UK manufacturing and retail markets in which Sanderson operates, the Group has built and maintained a good level of business momentum over the past two years. Its improved competitive market position, latest products and strong order book give the Board confidence regarding the outlook for the financial year ending on 30 September 2011.
Christopher Winn
Chairman
18 May 2011
CONSOLIDATED INCOME STATEMENT
Notes | Unaudited Six months to 31/03/11 £000 | Unaudited Six months to 31/03/10 £000 | Audited Year to 30/09/10 £000 | |
Continuing Operations | ||||
Revenue | 13,140 | 13,313 | 26,999 | |
Cost of sales | 2 | (3,864) | (4,384) | (8,366) |
Gross profit | 9,276 | 8,929 | 18,633 | |
Other operating expenses | (8,494) | (8,267) | (16,944) | |
Results from operating activities | 782 | 662 | 1,689 | |
Results from operating activities before amortisation and share based payment charges | 2 |
1,468 |
1,376 |
3,093 |
Amortisation of acquisition related intangibles | (662) | (690) | (1,381) | |
Share-based payment charges | (24) | (24) | (23) | |
Results from operating activities | 782 | 662 | 1,689 | |
| ||||
Movement in fair value of derivative financial instrument |
190 |
(8) |
4 | |
Net finance costs | (577) | (620) | (1,187) | |
Profit before tax | 395 | 34 | 506 | |
Tax | (76) | (29) | (234) | |
Profit for the period | 319 | 5 | 272 | |
Earnings per share | ||||
From continuing operations | ||||
Basic | 3 | 0.7p | 0.01p | 0.6p |
Diluted | 3 | 0.7p | 0.01p | 0.6p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
| Unaudited Six months to 31/03/11 £000 | Unaudited Six months to 31/03/10 £000 | Audited Year to 30/09/10 £000 |
Profit for the period |
| 319 | 5 | 272 |
Other comprehensive income |
| |||
Actuarial result on defined benefit pension schemes |
| - | - | (2,163) |
Income tax relating to components of other comprehensive income |
|
- |
- |
606 |
Other comprehensive income, net of tax |
| - | - | (1,557) |
Total comprehensive income / (expense) for the period |
| 319 | 5 | (1,285) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
| Unaudited As at31/03/11 £000 | Unaudited As at31/03/10£000 | Audited As at30/09/10 £000 |
Non-current assets |
|
|
|
|
Goodwill |
| 29,908 | 29,908 | 29,908 |
Other intangible assets |
| 2,464 | 3,730 | 3,089 |
Property, plant & equipment |
| 614 | 456 | 430 |
Deferred tax asset |
| 1,455 | 1,648 | 1,721 |
| 34,441 | 35,742 | 35,148 | |
Current assets |
| |||
Inventories |
| 325 | 362 | 321 |
Trade and other receivables |
| 7,088 | 7,210 | 7,669 |
Income tax receivable |
| - | 209 | 81 |
Cash and cash equivalents |
| 141 | 660 | 248 |
| 7,554 | 8,441 | 8,319 | |
Current liabilities |
| |||
Bank overdraft and loans |
| (1,644) | (1,636) | (1,644) |
Trade and other payables |
| (4,774) | (4,840) | (5,043) |
Current tax liabilities |
| (5) | (7) | - |
Derivative financial instrument |
| (295) | (497) | (485) |
Deferred income |
| (6,912) | (6,800) | (7,098) |
| (13,630) | (13,780) | (14,270) | |
Net current liabilities |
| (6,076) | (5,339) | (5,951) |
Non-current liabilities |
| |||
Deferred tax liabilities |
| (567) | (974) | (759) |
Pension and other employee obligations |
| (3,662) | (1,735) | (3,779) |
Loans and borrowings |
| (5,726) | (8,072) | (6,440) |
| (9,955) | (10,781) | (10,978) | |
Net assets |
| 18,410 | 19,622 | 18,219 |
Equity |
| |||
Called-up share capital |
| 4,338 | 4,338 | 4,338 |
Share premium |
| 4,178 | 4,178 | 4,178 |
Retained earnings |
| 9,894 | 11,106 | 9,703 |
Total equity |
| 18,410 | 19,622 | 18,219 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six month period to 31 March 2011
Share capital £000 | Share premium £000
| Retained earnings £000 | Total Equity £000
| |
At 1 October 2010 | 4,338 | 4,178 | 9,703 | 18,219 |
Dividend paid | - | - | (152) | (152) |
Share based payment charge | - | - | 24 | 24 |
Transactions with owners | - | - | (128) | (128) |
Profit for the period | - | - | 319 | 319 |
At 31 March 2011 | 4,338 | 4,178 | 9,894 | 18,410 |
For the six month period to 31 March 2010
Share capital £000 | Share premium £000
| Retained earnings £000 | Total Equity £000
| |
At 1 October 2009 | 4,338 | 15,178 | 160 | 19,676 |
Dividend paid | - | - | (87) | (87) |
Share based payment charge | - | - | 24 | 24 |
Capital reconstruction | - | (11,000) | 11,000 | - |
Transactions with owners | - | (11,000) | 10,937 | (63) |
Profit for the period | - | - | 5 | 5 |
Other comprehensive income: |
|
|
|
|
Foreign exchange differences | - | - | 4 | 4 |
Balance at 31 March 2010 | 4,338 | 4,178 | 11,106 | 19,622 |
For the year ended 30 September 2010
Share capital £000 | Share premium £000
| Retained earnings £000 | Total Equity £000
| |
At 1 October 2009 | 4,338 | 15,178 | 160 | 19,676 |
Dividend paid | - | - | (195) | (195) |
Share based payment charge | - | - | 23 | 23 |
Capital reconstruction | - | (11,000) | 11,000 | - |
Transactions with owners | - | (11,000) | 10,828 | (172) |
Profit for the year | - | - | 272 | 272 |
Other comprehensive income: |
|
|
|
|
Actuarial result on employee benefits | - | - | (2,163) | (2,163) |
Deferred tax on above | - | - | 606 | 606 |
Total comprehensive expense | - | - | (1,285) | (1,285) |
|
|
|
|
|
At 30 September 2010 | 4,338 | 4,178 | 9,703 | 18,219 |
CONSOLIDATED STATEMENT OF CASH FLOWS
Note | Unaudited Six months to 31/03/11 £000 | Unaudited Six months to 31/03/10 £000 | Audited Year to 30/09/10 £000 | |
Cash flows from operating activities | ||||
Profit for the period | 319 | 5 | 272 | |
Adjustments for: | ||||
Depreciation and amortisation | 800 | 837 | 1,755 | |
Share based payment charges | 24 | 24 | 23 | |
Net finance expense | 387 | 628 | 1,183 | |
Income tax expense | 76 | 29 | 234 | |
Operating cash flow before working capital movements |
1,606 |
1,523 |
3,467 | |
Movement in working capital | 118 | 274 | 161 | |
Cash generated by operations | 1,724 | 1,797 | 3,628 | |
Payments to defined benefit pension scheme | (168) | (129) | (258) | |
Interest paid | (368) | (718) | (1,245) | |
Income taxes received | 84 | 305 | 541 | |
Net cash from operating activities | 1,272 | 1,255 | 2,666 | |
Investing activities | ||||
Purchases of property, plant & equipment | (299) | (64) | (199) | |
Expenditure on product development | (60) | (35) | (152) | |
Net cash used in investing activities | (359) | (99) | (351) | |
| ||||
Financing activities | ||||
Equity dividends paid | 4 | (152) | (87) | (195) |
Repayment of bank borrowing | (864) | - | (1,459) | |
Repayment of finance lease principal | (4) | (8) | (12) | |
Net cash used in financing activities | (1,020) | (95) | (1,666) | |
(Decrease)/increase in cash and cash equivalents |
(107) |
1,061 |
649 | |
Cash and cash equivalents at start of the period | 248 | (401) | (401) | |
Cash and cash equivalents at end of the period | 141 | 660 | 248 |
NOTES TO THE INTERIM RESULTS
1. Basis of preparation
The Group's interim results for the six month period ended 31 March 2011 are prepared in accordance with the Group's accounting policies which are based on the recognition and measurement principles of International Financial Reporting Standards ('IFRS') as adopted by the EU and effective, or expected to be adopted and effective, at 30 September 2011. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS34 'Interim financial reporting'.
These interim results do not constitute full statutory accounts within the meaning of section 434(5) of the Companies Act 2006 and are unaudited. The unaudited interim financial statements were approved by the Board of Directors on 17 May 2011.
The consolidated financial statements are prepared under the historical cost convention as modified to include the revaluation of financial instruments. The statutory accounts for the year ended 30 September 2010, which were prepared under IFRS, have been filed with the Registrar of Companies. These statutory accounts carried an unqualified Auditors' Report and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006.
2. Segmental reporting
The Group is managed as two separate divisions, manufacturing and multi-channel retail. Substantially all revenue is generated within the UK.
Manufacturing | Multi-channel retail | Total | |||||||
Six months 31/03/11 £000 | Six months 31/03/10 £000 | Year Ended 30/09/10 £000 | Six months 31/03/11 £000 | Six months 31/03/10 £000 | Year Ended 30/09/10 £000 | Six months 31/03/11 £000 | Six months 31/03/10 £000 | Year Ended 30/09/10 £000 | |
Revenue | 3,014 | 3,098 | 5,832 | 10,126 | 10,215 | 21,167 | 13,140 | 13,313 | 26,999 |
Operating profit* | 527 | 536 | 836 | 941 | 840 | 2,257 | 1,468 | 1,376 | 3,093 |
Amortisation** | - | - | - | (662) | (690) | (1,381) | (662) | (690) | (1,381) |
Share based payment charges |
(3) |
(2) |
(5) |
(21) |
(22) |
(18) |
(24) |
(24) |
(23) |
Operating profit | 524 | 534 | 831 | 258 | 128 | 858 | 782 | 662 | 1,689 |
Net finance expense |
|
|
|
|
|
| (387) | (628) | (1,183) |
Profit before tax
|
|
|
|
|
|
| 395 | 34 | 506 |
* Stated before amortisation of acquisition related intangibles and share based payment charges.
** Amortisation of acquisition related intangibles.
3. Earnings per share
Six months to 31/03/11 £000 | Six months to 31/03/10 £000 | Year to 30/09/10 £000 | ||
Earnings from continuing operations | ||||
Profit for the period | 319 | 5 | 272 | |
Adjusted profit* | 1,005 | 719 | 1,676 | |
|
|
|
| |
Average number of shares during period | No. '000 | No. '000 | No. '000 | |
In issue at the start of the period | 43,384 | 43,384 | 43,384 | |
Effect of share options | 3,842 | 1,780 | 3,038 | |
Weighted average number of shares (diluted) at period end | 47,226 | 45,164 | 46,422 | |
|
|
|
| |
Earnings per share | pence | pence | pence | |
Continuing - basic | 0.7 | 0.01 | 0.6 | |
- diluted | 0.7 | 0.01 | 0.6 | |
|
|
|
| |
Adjusted* - basic | 2.3 | 1.7 | 3.9 | |
- diluted | 2.1 | 1.6 | 3.6 |
*Stated before amortisation of acquisition related intangibles, impairment of goodwill and share based payment charges.
4. Equity dividends paid
Six months to 31/03/11 £000 | Six months to 31/03/10 £000 | Year to 30/09/10 £000 | ||
Interim dividend | - | - | 108 | |
Final dividend | 152 | 87 | 87 | |
Total dividend paid in period | 152 | 87 | 195 |
5. Interim report
The Group's interim report will be sent to the Company's shareholders. This report will also be available from the Company's registered office and on the Company's website www.sanderson.com.