Last checked at 26 Nov 2013 07:00
FOR IMMEDIATE RELEASE 26 November 2013
SANDERSON GROUP PLC
Preliminary Results for the year ended 30 September 2013
"Strong trading momentum maintained; complemented by increased levels of business from new customers"
Sanderson Group plc ('Sanderson' or 'the Group' ), the software and IT services business specialising in multi-channel retail and manufacturing markets in the UK and Ireland, announces Preliminary Results for the financial year ended 30 September 2013.
Commenting on the results, Chairman, Christopher Winn, said:
"Against a challenging UK economic backdrop, the Group's trading results have produced increased revenue, gross margin and operating profit, together with a high level of pre-contracted recurring revenue. The value of the order book at the year end has provided a solid platform from which to make further progress in the current year. Sanderson has continued to generate cash, allowing the Board to maintain its progressive dividend policy and two acquisitions, completed either side of the year end, provide the Group with significant growth opportunities.
Highlights - Financial
§ Total revenue of £13.83 million (2012: £13.37 million).
§ Pre-contracted recurring revenue of £7.94 million (2012: £7.66 million) accounting for approximately 57.4% of total revenue (2012: 57.3%).
§ Increases in multi-channel retail division revenue and operating profits* to £7.23 million (2012: £7.17 million) and £1.28 million (2012: £1.21 million) respectively; increased business from new customers with trend towards bigger orders; five new customers gained.
§ Increase in manufacturing division revenue to £6.59 million (2012: £6.20 million)
§ Gross margins further improved to 87.6% (2012: 83.6%) reflecting increased delivery and installation of proprietary software and other 'owned' services.
§ Increase in operating profit* to £2.22 million (2012: £2.04 million).
§ Profit before tax from continuing operations of £1.94 million (2012: £1.48 million).
§ Adjusted, diluted earnings per share from continuing operations, stated before items relating to acquisitions of 4.2 pence (2012: 3.6 pence)
§ Net cash at year end of £3.66 million (2012: £4.07 million; 2011: net debt of £6.72 million) after paying £500,000 initial cash consideration on the acquisition of Catan Marketing Limited.
§ Proposed final dividend per share of 0.85 pence (2012: 0.7 pence), making total for year of 1.5 pence per share (2012: 1.2 pence).
Highlights - Operational
§ Strong trading momentum maintained and complemented by increased levels of business from new customers;
§ Order book stood at £1.94 million at year end (2012: £1.89 million; 2011: £1.35 million).
§ Manufacturing division added nine new customers during the year and has a very strong order book.
§ Further investment in sales and marketing capability made.
§ Two acquisitions completed, one after the year end; Catan Marketing Limited acquired in August for up to £644,660 cash and One iota Limited acquired in October for up to £5.43 million.
§ Continued investment in proprietary solutions using mobile technologies complemented by recent acquisition of One iota Limited.
§ Successful Share Placing at 55 pence per share in October raised £3.50 million (before costs).
* stated before amortisation of acquisition-related intangibles, share-based payment charges and acquisition-related costs
On strategy, current trading and prospects, Mr. Winn, added:
"The Sanderson Board intends to pursue a growth strategy based upon a conservative financing policy with a strong balance sheet and cash in the bank at its core. The Group will continue to invest across all of its businesses, with particular emphasis on further developing a range of solutions for ecommerce as well as for the food and drink processing sector, while mobile commerce solutions are being developed across all of the Group's target markets.
"The general economic environment, though showing some signs of improvement, is still challenging and accordingly the Board continues to adopt a cautious approach. However, the strong order book, improved market position and the two recent acquisitions provide the Board with an expectation that Sanderson will achieve significant progress during the current financial year."
Enquiries:
Christopher Winn, Chairman Telephone: 0333 123 1400
Adrian Frost, Finance Director
Paul Vann, Winningtons Financial Telephone: 0117 985 8989 or 07768 807631
Mark Taylor, Charles Stanley Securities Telephone: 020 7149 6000
SANDERSON GROUP PLC
Preliminary Results for the year ended 30 September 2013
Chairman's statement
Introduction
Sanderson provides a comprehensive and constantly developing range of modern software solutions together with associated services to businesses in the multi-channel retail and manufacturing markets. The Group's business model has been developed whereby solutions primarily comprising Sanderson proprietary software (sometimes integrated with other market leading products) are marketed, sold under licence, delivered, supported and serviced by expert Sanderson staff. The Group has been able to deliver a consistent and reliable quality of service which has ensured the development of long-term relationships with customers.
Financial results
The Group's trading results for the year ended 30 September 2013 ('the period' ) show revenue of £13.83 million (2012: £13.37 million), further improvement in gross margin to 87.6% (2012: 83.6%) as a result of increased emphasis on higher margin Sanderson proprietary software, delivered and installed by our own staff and operating profit before amortisation of acquisition-related intangibles, acquisition costs and share-based payment charges ('operating profit') of £2.22 million (2012: £2.04 million). The value of the order book at the period end was £1.94 million (2012: £1.89 million, 2011:£1.35 million), providing a solid platform from which to make further progress in the current financial year.
After paying £500,000 of initial consideration relating to the acquisition of Catan Marketing Limited in the period, the net cash balance at 30 September 2013 was £3.66 million (2012: £4.07 million).
Dividend
The Group has continued to generate cash, enabling the Board to maintain its progressive dividend policy whilst continuing to invest in and to develop the Group's businesses. Subject to the approval of shareholders at the Annual General Meeting, which is scheduled to be held on 28 February 2014, the Board is proposing a final dividend of 0.85 pence per ordinary share, making a total of 1.50 pence for the year, representing a 25% increase compared with the total dividend of 1.20 pence in 2012. The final dividend, if approved, will be paid on 28 March 2014 to shareholders on the register at the close of business on 7 March 2014. The Board intends to continue to pay a progressive dividend based upon the trading and strong cash generation of the Sanderson business.
Business review
Sanderson is an established provider of software and services to the multi-channel retail and manufacturing markets. With the emergence of the multi-channel retail division as the larger part of the Group's operations so the second half of the financial year now contributes a larger proportion of annual operating profit. This is partly due to the importance of the September to January trading period for customers who operate in the market areas of 'online sales, ecommerce and catalogue sales' ('ecommerce') and as a consequence, many IT investment decisions are not generally considered before February of each year. The Group's growing number of food and drink processing customers also experience the same 'busy' period. As a result, the second half of the financial year to 30 September, produced an additional £239,000 of operating profit compared with the first half year to 31 March.
Pre-contracted recurring revenues are a cornerstone of the Sanderson business and provide the Board with good visibility of future earnings. Sanderson software is licenced to customers, typically on annual contracts and this recurring software licence revenue stream is augmented by consultancy, support and maintenance services. In the period to 30 September 2013, pre-contracted recurring revenues were £7.94 million representing 57% of total revenues (2012: £7.66 million and 57%). The gross margin from recurring revenues covered 73% of Group overheads (2012: 76%).
The Group continued to invest in its products and services and has made further investment in the delivery and services capabilities of the Group's ecommerce businesses, as well as the business which focuses on the food and drink processing sector. Since 2010, the investment in the Group's sales and marketing activities has been increased by over 10% per annum.
During the period, 14 new customers were gained (2012: 15 new customers) at an average initial contract value of £119,000 (2012: £99,000). The value of orders from new customers grew again with the total increasing to £1.67 million (2012: £1.49 million, 2011: £1.33 million). The annual growth rate being achieved in the ecommerce market continues to be in excess of 10% and this growth, which is being further fuelled by mobile commerce (ecommerce via mobile devices) is expected to continue to provide growth opportunities in the mid-term. The food and drink processing sector within the UK is growing, as is the Group's own business which addresses this market.
Sanderson products are continually developed to offer both prospective and existing customers, the opportunity to achieve cost savings and to make business efficiencies utilising the latest technologies. 'Value for money' propositions which demonstrate a good return on investment case are key considerations for UK commercial businesses. Consistent high quality service and support is also an important factor in retaining customers and building long-term relationships. In August 2013, one of the Group's longstanding customers (since 2000), placed an extension order, worth over £190,000, for the deployment of Sanderson software into a number of its subsidiary businesses including Zambia, Botswana, Namibia, Nigeria and Ghana.
The increased emphasis on higher margin Sanderson proprietary software, delivered and installed by our own staff, has resulted in the further improvement of gross margin to 87.6% in the period, compared with 83.6% in the year ending 30 September 2012 and 82.3% in the previous year, ending 30 September 2011.
Review of multi-channel retail
Sanderson provides comprehensive IT solutions to businesses operating in the ecommerce sector, wholesale distribution, cash and carry and retail stores. High levels of activity have been experienced from providing mobile commerce solutions, incorporating the latest 'responsive' web technologies that optimise customers' websites enabling them to adapt to whatever device is being used for optimal viewing, seamless navigation and increased sales.
Revenue in the period was £7.23 million (2012: £7.17 million) and whilst there was continued strong growth in ecommerce businesses, very much reflecting market trends, there was a decline in the Group's business focused on traditional mail order fulfilment. Completion of a planned investment in the infrastructure and capability of the Group's ecommerce business resulted in operating profit growth being limited to 6% to £1.28 million (2012: £1.21 million). Revenue from customers operating in the ecommerce market grew to £2.62 million, (2012: £2.40 million, 2011 £2.09 million). Gross margin improved to 87.6% (2012: 83.7%). Five new customers were gained in the period compared with nine in the previous year. The increased level of new customer business has continued with a large order from a new customer, worth almost £250,000, gained at the start of the current financial year. Sales prospects are strong and it is expected that the investment made in the year ending 30 September 2013 will contribute to faster progress in the coming year.
Review of manufacturing
The part of the Group's business which addresses the general UK manufacturing market experienced a tougher trading environment than in the previous year, whereas the business focused on the food and drink processing sector, benefiting from investment made over the last two years, made very good progress and drove overall growth for the manufacturing division. The size of the UK food and drink processing market is growing and there is an increase in the number of small and medium businesses in this sector. The need for traceability through the food and drink distribution, production and supply chain, combined with a continued drive to reduce operational costs has provided the Group with a good opportunity in this market. The Sanderson food and drink processing business now represents 49% of the Group's manufacturing business (2012: 44%, 2011: 39%).
Full year revenue was £6.59 million (2012: £6.20 million) and operating profit was £932,000 (2012: £831,000). Overall order intake was £3.10 million (2012: £2.74 million).
Nine new customers were gained in the period (2012: six new customers) including Broder Metals Group, COOK Trading Limited, Kolak Snack Foods and Virani Food Products. The order book is strong and at the period end stood at over £1.2 million (2012: £870,000) with very good sales prospects.
Acquisition
On 12 August 2013, the Group acquired Catan Marketing Limited, trading as PRIAM, for a maximum consideration of £644,660. PRIAM had revenues of £875,000 in the year to 31 August 2012, employs 14 staff and is based in Rugby. PRIAM achieved £147,000 of revenue in the period from its acquisition and contributed £6,000 of operating profit. During the current financial year, management plan to integrate PRIAM into the Group's multi-channel retail division and to invest in the sales and marketing capability of the business.
Post Period End Events - Acquisition
In October, the Group acquired One iota Limited for a maximum consideration of £5.43 million, made up of initial consideration of £3.13 million and deferred consideration of up to £2.30 million depending on the trading performance of business in the three years to 30 September 2016. The One iota business is experienced in cloud-based multi-channel solutions and the One iota MESH platform integrates a retailer's back-office and existing systems, with mobile, tablet and in-store sales channels. In the year to 31 January 2013, One iota produced revenues of £665,000 and profit (before taxation) of £195,000. One iota offers, in its own right, a significant growth opportunity in the rapidly expanding mobile retail solutions market as well as a synergistic opportunity to accelerate further the development of Sanderson into the provision of integrated mobile solutions.
Post Period End Events - Share Placing
The Sanderson Board remains committed to pursuing a growth strategy based upon a conservative financing policy with a strong balance sheet and cash in the bank at its core.
On 28 October 2013, the Group successfully completed the raising of £3.50 million before costs by way of a placing of 6,363,636 new ordinary shares, issued at 55 pence per share. The total issued share capital of the Group is now 51,479,218 ordinary shares.
After the Acquisitions and the Share Placing, the cash balance as at 22 November was in excess of £4.5 million.
Management and staff
Sanderson now employs approximately 185 staff, who have a high level of experience and expertise in the market sectors which the Group addresses. Over the last 15 months, management have looked to recruit graduates and more recently, have been working with Local Enterprise Partnerships to recruit school leavers. On behalf of the Board, I would like to thank everyone for their hard work, support and dedication to the development of Sanderson over the period of recovery and business transition since 2009 and now into a period of planned sustainable growth.
Strategy
The Board's strategy is to achieve growth by continuing to build upon the Group's businesses operating within the multi-channel retail and manufacturing markets. Sanderson is a provider of modern and proven software solutions which continue to provide customers with opportunities to gain competitive advantage and to effect cost saving efficiencies. Our goal is to achieve growth, build value and thereby improve shareholder returns. Whilst the Group will continue to invest across all of its businesses, particular emphasis will be placed on developing further the range of solutions for ecommerce businesses, as well as, for the food and drink processing sector. Mobile commerce solutions are being developed across all of the Group's target markets.
Selective acquisition opportunities will continue to be considered to augment organic growth. However, in the short term, management intends to focus on delivering 'on target' results and on making the PRIAM and One iota acquisitions successful.
Outlook
Whilst the Board is keen to pursue the continued development of Sanderson, the economic environment, though showing some signs of improvement, is still challenging and accordingly the Board continues to adopt a cautious approach. However, the Group's strong order book, improved market position and the two recent acquisitions provide the Board with an expectation that Sanderson will achieve significant progress during the current financial year ending 30 September 2014.
Christopher Winn
Chairman
26 November 2013
Consolidated income statement
for the year ended 30 September 2013
Continuing operations | Relating to acquisitions | Total 2013 | Total 2012 | ||
Note | £000 | £000 | £000 | £000 | |
Revenue | 2 | 13,681 | 147 | 13,828 | 13,374 |
Cost of sales | (1,684) | (27) | (1,711) | (2,188) | |
Gross profit | 11,997 | 120 | 12,117 | 11,186 | |
Technical and development costs | (5,239) | (65) | (5,304) | (4,989) | |
Administrative and establishment expenses | (2,975) | (209) | (3,184) | (2,912) | |
Sales and marketing costs | (1,657) | - | (1,657) | (1,379) | |
Results from operating activities | 2,126 | (154) | 1,972 | 1,906 | |
Results from operating activities before adjustments in respect of the following: |
2 |
2,209 |
6 |
2,215 |
2,038 |
Amortisation of acquisition-related intangibles | - | (66) | (66) | (67) | |
Acquisition related costs | - | (94) | (94) | - | |
Share-based payment charges | (83) | - | (83) | (65) | |
Results from operating activities
| 2,126 | (154) | 1,972 | 1,906 | |
Finance income | 3 | 489 | - | 489 | 465 |
Finance expenses | 4 | (518) | - | (518) | (679) |
Exceptional finance expense | - | - | - | (227) | |
Movement in fair value of derivative financial instrument | - | - | - | 16 | |
2,097 | (154) | 1,943 | 1,481 | ||
Taxation | 5 | (251) | (1) | (252) | (185) |
Profit/(loss) for the year | 1,846 | (155) | 1,691 | 1,296 | |
Profit on discontinued operations, net of tax | - | - | -
| 1,110 | |
Profit/(loss) for the year attributable to equity holders of the parent |
1,846 |
(155) |
1,691 |
2,406 |
Earnings per share
From continuing operations | |||||
Basic earnings per share | 7 | 4.2p | (0.3p) | 3.9p | 3.0p |
Diluted earnings per share | 7 | 4.0p | (0.3p) | 3.7p | 2.8p |
From discontinued operations | |||||
Basic earnings per share | 7 | - | - | - | 2.5p |
Diluted earnings per share | 7 | - | - | - | 2.4p |
From profit attributable to the owners of the parent undertaking during the year | |||||
Basic earnings per share | 7 | 4.2p | (0.3p) | 3.9p | 5.5p |
Diluted earnings per share | 7 | 4.0p | (0.3p) | 3.7p | 5.2p |
Consolidated statement of comprehensive income
for the year ended 30 September 2013
2013 | 2012 | ||
£000 | £000 | ||
Profit for the year | 1,691 | 2,406 | |
Other comprehensive income | |||
Items that will not subsequently be reclassified to profit or loss | |||
Defined benefit pension plan actuarial losses | (225) | (740) | |
Deferred taxation effect of defined benefit pension plan items | 53 | 185 | |
(172) | (555) | ||
Items that will subsequently be reclassified to profit or loss | |||
Change in market value of available for sale financial asset | 74 | - | |
Foreign exchange translation differences | (32) | - | |
Total comprehensive income attributable to equity holders of the parent | 1,561 | 1,851 |
Consolidated statement of financial position
at 30 September 2013
2013 | 2012 | |||
£000 | £000 | |||
Non-current assets | ||||
Property, plant and equipment | 307 | 372 | ||
Intangible assets | 23,194 | 22,404 | ||
Deferred tax assets | 1,388 | 1,567 | ||
24,889 | 24,343 | |||
Current assets | ||||
Inventories | - | 9 | ||
Trade and other receivables | 3,371 | 3,594 | ||
Other short-term financial assets | 205 | 131 | ||
Cash and cash equivalents | 3,662 | 4,066 | ||
7,238 | 7,800 | |||
Current liabilities | ||||
Trade and other payables | (2,746) | (2,872) | ||
Deferred consideration | (145) | - | ||
Income tax payable | (5) | (9) | ||
Deferred income | (3,886) | (4,599) | ||
(6,782) | (7,480) | |||
Net current assets | 456 | 320 | ||
Total assets less current liabilities | 25,345 | 24,663 | ||
Non-current liabilities | ||||
Pension obligations | (4,174) | (4,512) | ||
Deferred tax liabilities | (272) | (121) | ||
(4,446) | (4,633) | |||
Net assets | 20,899 | 20,030 |
Equity attributable to equity holders of the Parent Company | ||||
Share capital | 4,380 | 4,352 | ||
Share premium | 4,302 | 4,205 | ||
Available-for-sale reserve | 74 | - | ||
Foreign exchange reserve | (32) | - | ||
Retained earnings | 12,175 | 11,473 | ||
Total equity | 20,899 | 20,030 |
Consolidated statement of changes in equityfor the year ended 30 September 2013
|
Share Capital |
Share Premium |
Available- For -Sale Reserve |
Foreign Exchange Reserve |
Retained Earnings |
Total Equity | |
£000 | £000 | £000 | £000 | £000 | £000 | ||
At 1 October 2012 | 4,352 | 4,205 | - | - | 11,473 | 20,030 | |
Exercise of share options | 28 | 97 | - | - | (110) | 15 | |
Dividend paid | - | - | - | - | (590) | (590) | |
Settlement of share options | - | - | - | - | (200) | (200) | |
Share-based payment charge | - | - | - | - | 83 | 83 | |
Transactions with owners | 28 | 97 | - | - | (817) | (692) | |
Profit for the year | - | - | - | - | 1,691 | 1,691 | |
Other comprehensive income: | |||||||
Actuarial result on employee benefits | - | - | - | - | (225) | (225) | |
Deferred tax on above | - | - | - | - | 53 | 53 | |
Foreign exchange translation differences | - | - | - | (32) | - | (32) | |
Change in fair value of available for sale financial asset | - | - | 74 | - | - | 74 | |
Total comprehensive income | - | - | 74 | (32) | 1,519 | 1,561 | |
At 30 September 2013 | 4,380 | 4,302 | 74 | (32) | 12,175 | 20,899 |
for the year ended 30 September 2012
| Share Capital | Share Premium | Available- For- Sale Reserve | Foreign Exchange Reserve | Retained Earnings | Total Equity | |
£000 | £000 | £000 | £000 | £000 | £000 | ||
At 1 October 2011 | 4,338 | 4,178 | - | - | 9,959 | 18,475 | |
Exercise of share options | 14 | 27 | - | - | (41) | - | |
Dividend paid | - | - | - | - | (413) | (413) | |
Share-based payment charge - continuing operations |
- |
- |
- |
- |
65 |
65 | |
- discontinued operation | - | - | - | - | 52 | 52 | |
Transactions with owners | 14 | 27 | - | - | (337) | (296) | |
Profit for the year | - | - | - | - | 2,406 | 2,406 | |
Other comprehensive income: | |||||||
Actuarial result on employee benefits | - | - | - | - | (740) | (740) | |
Deferred tax on above | - | - | - | - | 185 | 185 | |
Total comprehensive income | - | - | - | - | 1,851 | 1,851 | |
At 30 September 2012 | 4,352 | 4,205 | - | - | 11,473 | 20,030 | |
Consolidated statement of cash flowsfor the year ended 30 September 2013
2013 | 2012 | ||
Cash flows from operating activities | £000 | £000 | |
Profit for the year after taxation including discontinued operations | 1,691 | 2,406 | |
Adjustments for: | |||
Amortisation of intangible assets; continuing operations | 237 | 176 | |
Depreciation; continuing operations | 124 | 75 | |
Share-based payment expense; continuing operations | 83 | 65 | |
Post tax profit on discontinued operations | - | (1,110) | |
Net finance expense | 29 | 441 | |
Movement in fair value of derivative financial instrument | - | (16) | |
Income tax charge | 252 | 185 | |
Operating cash flow before changes in working capital | 2,416 | 2,222 | |
Movement in trade and other receivables | 383 | (666) | |
Movement in inventories | 9 | 26 | |
Movement in trade and other payables | (1,100) | 434 | |
Cash generated from continuing operations | 1,708 | 2,016 | |
Discontinued operations - operating cash flow | - | (356) | |
Payments to defined benefit pension scheme | (677) | (315) | |
Interest paid | - | (703) | |
Income tax received | - | 377 | |
Net cash flow from operating activities | 1,031 | 1,019 | |
Cash flow from investing activities | |||
Purchase of property, plant and equipment | (45) | (194) | |
Purchase of investment held for resale | - | (131) | |
Acquisition of trade and assets, net of cash acquired | - | (173) | |
Acquisition of subsidiary undertaking, net of cash acquired (note 8) | (440) | - | |
Dividend received | 20 | 2 | |
Bank interest received | 54 | - | |
Disposal of discontinued operations, net of cash disposed | - | 11,064 | |
Discontinued operations - investing cash flows | - | (140) | |
Development expenditure capitalised | (249) | (187) | |
Net cash flow from investing activities | (660) | 10,241 | |
Cash flow from financing activities | |||
Repayment of bank borrowing | - | (7,400) | |
Issue of shares | 15 | - | |
Settlement of share options | (200) | - | |
Equity dividends paid | (590) | (413) | |
Net cash flow from financing activities | (775) | (7,813) | |
Net (decrease)/increase in cash and cash equivalents | (404) | 3,447 | |
Cash and cash equivalents at beginning of year | 4,066 | 619 | |
Cash and cash equivalents at the end of the year | 3,662 | 4,066 |
Notes
1. Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union ('IFRS'). The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange. The principal accounting policies of the Group, which have been applied consistently, are set out in the annual report and financial statements.
2. Segmental reporting
The Group is managed as two separate divisions, providing IT solutions and associated services to the manufacturing and multi-channel retail sectors. Substantially all revenue is generated within the UK. The information provided to the CODM is analysed between the divisions as follows:
Manufacturing | Multi-Channel | Total |
| |||||
2013 £000 | 2012 £000
| 2013 £000 | 2012 £000
| 2013 £000 | 2012 £000
| |||
|
|
|
|
|
| |||
Revenue - external customers | 6,594 | 6,201 | 7,234 | 7,173 | 13,828 | 13,374 | ||
Cost of sales | (817) | (1,019) | (894) | (1,169) | (1,711) | (2,188) | ||
Gross profit | 5,777 | 5,182 | 6,340 | 6,004 | 12,117 | 11,186 | ||
Depreciation charged + | (85) | (56) | (39) | (31) | (124) | (87) | ||
Operating profit before adjustments | 932 | 831 | 1,283 | 1,207 | 2,215 | 2,038 | ||
Amortisation* | (53) | (24) | (13) | (43) | (66) | (67) | ||
Acquisition related costs | - | - | (94) | - | (94) | - | ||
Share-based payment charges | (31) | (7) | (52) | (58) | (83) | (65) | ||
Result from operating activities | 848 | 800 | 1,124 | 1,106 | 1,972 | 1,906 | ||
Net finance expense |
|
|
|
| (29) | (425) | ||
Taxation |
|
|
|
| (252) | (185) | ||
Result on discontinued activity net of tax |
|
|
|
| - | 1,110 | ||
Profit attributable to equity holders |
|
|
|
| 1,691 | 2,406 | ||
*Amortisation of acquisition-related intangibles
+ Depreciation charged to operating profit
Revenue, operating profit and profit before tax shown above in respect of the year ended 30 September 2012 show continuing operations only. The CODM uses both gross profit and operating profit measures in assessing the performance of the Group's divisions. The Group disposed of its subsidiary undertaking Sanderson RBS Limited on 20 January 2012. The discontinued operation contributed no revenue or operating profit in the period (2012: £3.53m revenue, £0.50m operating loss stated after amortisation of acquisition related intangibles and shared based payment charges).
| ||||||||||
Analysis of items contained within the Statement of Financial Position
| ||||||||||
2013 £000 | 2012 £000 | 2013 £000 | 2012 £000 | 2013 £000 | 2012 £000 | |||||
Property, plant and equipment | 160 | 222 | 147 | 150 | 307 | 372 | ||||
Intangible assets | 11,602 | 11,693 | 11,592 | 10,711 | 23,194 | 22,404 | ||||
Deferred tax assets | 978 | 1,197 | 155 | 197 | 1,133 | 1,394 | ||||
Inventory | - | 3 | - | 6 | - | 9 | ||||
Cash and cash equivalents | 2,024 | 753 | 3,478 | 1,726 | 5,502 | 2,479 | ||||
Trade and other receivables | 1,688 | 1,478 | 1,683 | 2,116 | 3,371 | 3,594 | ||||
Total assets | 16,452 | 15,346 | 17,055 | 14,906 | 33,507 | 30,252 | ||||
|
|
|
|
|
| |||||
Trade and other payables | (1,165) | (1,055) | (1,581) | (1,817) | (2,746) | (2,872) | ||||
Deferred income | (1,966) | (2,188) | (1,920) | (2,411) | (3,886) | (4,599) | ||||
Income tax | (5) | (9) | - | - | (5) | (9) | ||||
Deferred taxation | (38) | (38) | - | - | (38) | (38) | ||||
Deferred consideration | - | - | (145) | - | (145) | - | ||||
Pension obligations | (4,174) | (4,512) | - | - | (4,174) | (4,512) | ||||
Total liabilities | (7,348) | (7,802) | (3,646) | (4,228) | (10,994) | (12,030) | ||||
Allocated net assets | 9,104 | 7,544 | 13,409 | 10,678 | 22,513 | 18,222 | ||||
Other unallocated assets and liabilities |
|
|
|
| (1,614) | 1,808 | ||||
Net assets |
|
|
|
| 20,899 | 20,030 | ||||
The Group's assets are held in the United Kingdom. No one customer accounts for more than 10% of the sales of either division. Included within other unallocated assets and liabilities are net overdrawn cash balances totalling £1.84m (2012: cash balances of £1.59m) and deferred tax balances in respect of certain shared operations. Amounts in respect of shared operations cannot be allocated between operating divisions.
Additions to property, plant and equipment during the year amounted to £45,000 (2012: £310,000). A total of £21,000 (2012: £175,000) were attributable to the Manufacturing division, with £24,000 (2012: £135,000) incurred by the Multi-channel retail division. In 2012, Sanderson RBS Limited accounted for £90,000 of additions.
3. Finance income
2013£000 | 2012 £000 | |
|
| |
Expected return on defined benefit pension scheme assets | 415 | 463 |
Bank interest received | 54 | - |
Dividend received | 20 | 2 |
489 | 465 |
4. Finance expenses
2013£000 | 2012 £000 | |
|
| |
Interest on bank overdrafts and loans | - | 127 |
Interest on defined benefit pension scheme obligations | 518 | 552 |
518 | 679 |
5. Taxation
Current tax expense | 2013£000 | 2012 £000 |
UK corporation tax for the current year | - | - |
Overseas corporation tax for the current year | (3) | 4 |
Relating to prior periods | (20) | (23) |
Total current tax | (23) | (19) |
Deferred tax |
|
|
Deferred tax for the current year | 168 | 256 |
Relating to prior periods | (61) | (171) |
Relating to change in rate of tax | 168 | 119 |
Total deferred tax | 275 | 204 |
Taxation charged to the income statement | 252 | 185 |
Reconciliation of effective tax rate
The current consolidated tax charge for the period is lower (2012: lower) than the average standard rate of corporation tax in the UK during the period of 23.5%. The differences are explained below.
2013 | 2012 | |
£000 | £000 | |
|
| |
Profit before taxation - continuing operations | 1,943 | 1,481 |
Tax using the average UK Corporation tax rate of 23.5% (2012: 25%) | 457 | 370 |
Effects of: |
|
|
Expenses not deductible for tax purposes | 56 | 224 |
Utilisation of losses not previously recognised | (348) | (334) |
Over provision in previous years | (81) | (194) |
Change in tax rate | 168 | 119 |
Total tax in income statement | 252 | 185 |
6. Dividends
| 2013 £000 | 2012 £000 | ||
|
|
| ||
Interim dividend of 0.65p per share (2012: 0.50p) |
| 285 | 217 | |
Final dividend relating to previous financial year of 0.70p per share (2012: 0.45p) |
| 305 | 196 | |
Total dividend for the financial year |
| 590 | 413 | |
A final dividend of 0.85 pence per ordinary share in respect of the financial year ended 30 September 2013 will be proposed at the Annual General Meeting of the company, expected to be held on 28 February 2014. If approved by shareholders, the total final dividend payment will amount to £437,573.
7. Earnings per share
Basic and diluted earnings per share are calculated by dividing the result after tax for the year by the weighted average number of ordinary shares at the end of the year and the diluted weighted average number of ordinary shares at the end of the year respectively. In order to better demonstrate the performance of the Group, an adjusted earnings per share calculation has been presented below which adds back items typically adjusted for by users of the accounts. The calculations for earnings and the number of shares relevant to all of the measures of earnings per share described in the foregoing are set out below:
Earnings: | 2013 | 2012 |
£000 | £000 | |
|
| |
Result for the year from continuing operations | 1,846 | 1,296 |
Amortisation of acquisition-related intangibles | - | 67 |
Share-based payment charges | 83 | 65 |
Exceptional finance costs | - | 227 |
Adjusted profit for the year from continuing operations | 1,929 | 1,655 |
Result for the year relating to acquisitions | (155) | - |
Acquisition related costs | 94 | - |
Amortisation of acquisition-related intangibles | 66 | - |
Adjusted profit for the year relating to acquisitions | 5 | - |
Result for the year relating from discontinued operations | - | 1,110 |
Amortisation of acquisition-related intangibles | - | 270 |
Share-based payment charges | - | 52 |
Adjusted profit for the year from discontinued operations | - | 1,432 |
7. Earnings per share (continued)
Number of shares: | 2013 | 2012 |
No. | No. | |
|
| |
In issue at the start of the year | 43,525,946 | 43,383,946 |
Effect of shares issued in the year | 205,907 | 129,940 |
Weighted average number of shares at year end | 43,731,853 | 43,513,886 |
Effect of share options | 2,385,565 | 3,021,787 |
Weighted average number of shares (diluted) | 46,117,418 | 46,535,673 |
Earnings per share: | 2013(pence) | 2012 (pence) |
From continuing operations: |
|
|
Basic | 3.9 | 3.0 |
Diluted | 3.7 | 2.8 |
|
| |
From discontinued operations: |
|
|
Basic | - | 2.5 |
Diluted | - | 2.4 |
Total attributable to equity holders of the parent undertaking: |
|
|
Basic | 3.9 | 5.5 |
Diluted | 3.7 | 5.2 |
Earnings per share, adjusted, from continuing operations: |
|
|
Basic | 4.4 | 3.8 |
Diluted | 4.2 | 3.6 |
Subsequent to the year end, ordinary shares were issued pursuant to the acquisition of One iota Limited and a placing. As a result, the total number of ordinary shares in issue at the date of this report is 51,479,218. Had the ordinary shares been issued at the start of the year, the earnings per share reported above would have been reduced. However, the results for the year would have been affected by the result of the subsidiary acquired and the use to which the placing proceeds may have been put.
8. Acquisitions
On 12 August 2013 the Group acquired the entire issued ordinary share capital of Catan Marketing Limited for cash consideration. The business develops and supplies e-commerce software and related services under the PRIAM trading name. In the period from acquisition to 30 September 2013 the business contributed revenue of £147,000 and a £6,000 operating profit before amortisation of acquisition-related intangibles, share-based payment charges, acquisition-related costs and taxation. If the acquisition had occurred on 1 October 2012, Group revenue would have been £872,000 higher and Group operating profit £10,000 higher. These figures are based on the assumption that fair value adjustments arising on acquisition would have been the same had the acquisition completed on 1 October 2012.
The acquisition had the following effect on the Group's assets and liabilities at the acquisition date:
Pre-acquisition carrying amount | Fair value adjustment | Recognised value on acquisition | |||
£000 | £000 | £000 | |||
Property, plant and equipment | 14 | - | 14 | ||
Intangible assets | - | 468 | 468 | ||
Trade and other receivables | 178 | (17) | 161 | ||
Trade and other payables | (191) | (69) | (260) | ||
Deferred taxation | - | (108) | (108) | ||
Net identifiable assets and liabilities | 1 | 274 | 275 | ||
Goodwill on acquisition | 310 | ||||
585 | |||||
Cash consideration paid at completion, net of cash balances | 440 | ||||
Deferred cash consideration, paid 4 October 2013 | 50 | ||||
Deferred contingent cash consideration | 95 | ||||
Net consideration payable | 585 | ||||
The fair value adjustments relate to the recognition of intangible assets in accordance with IFRS 3: Business combinations, adjustments to deferred income to apply the Group's accounting policy to amounts billed prior to acquisition and adjustments to the accounting for costs relating to deferred income to match the treatment adopted in respect of the income. Fair values have been determined on a provisional basis.
Pre-acquisition carrying amounts were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values. In determining the fair value of intangible assets, the Group adopted an income basis with estimated future cash flows discounted at a rate of 12% per annum.
The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the workforce of the acquired business and the expected synergies to be achieved from integrating the Company into the Group's existing multi-channel retail operations.
Deferred contingent cash consideration is payable by reference to revenue generated by the acquired entity in the 12 month period ending on 31 August 2014. The maximum amount payable will be £95,000 should revenue exceed £895,000 and management expect this amount to be paid. The deferred conditional consideration is payable within 10 days of the amount being agreed and it is envisaged the payment will be made in September 2014. As the payment date is within 12 months of the year end, the amount payable has not been discounted.
Acquisition costs of £94,000 (2012: £nil) have been charged against operating profit and are included in administrative expenses.
9. Annual Report & Accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.
The Consolidated Income Statement, Consolidated Statement of Financial Position, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows, together with associated notes, have been extracted from the Group's 2013 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under section 498(2) or (3) of the Companies Act 2006.
The accounts for the year ended 30 September 2013 will be laid before the Company at the Annual General Meeting, expected to be held at the Company's registered office on 28 February 2014. A copy of this preliminary statement will be available to download on the Group's website www.sanderson.com. Copies of the Annual Report and Accounts will be posted to shareholders in due course at which time the Annual Report and Accounts will be made available to download on the Group's website www.sanderson.com in accordance with AIM Rule 26, and will be delivered to the Registrar of Companies in due course.