Sondrel Plc Regulatory News (SND)

FOR IMMEDIATE RELEASE 5 June 2013

SANDERSON GROUP PLC

Interim Results for the six months ended 31 March 2013

 "Further improved performance and growth following year of transition"

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 2013.

Commenting on the results, Chairman, Christopher Winn, said:

"Results for the six month trading period to 31 March 2013 show further improvements in revenues and operating profits. Whilst general UK trading conditions remain challenging, Sanderson has continued to generate cash strongly and to invest both in its products and services as well as in its sales and marketing capacity and capability, together producing an improved performance in the first half".

Highlights - Financial

§ Revenues from continuing operations increased to £6.37m (2012: £6.14m).

§ An increase in excess of 13% in operating profit from continuing operations amounting to £0.91m (2012: £0.80m).

§ Profit before tax from continuing operations of £0.85m (2012: £0.41m).

§ Basic earnings per share from continuing operations of 1.8p (2012: 0.4p).

§ Net cash at period-end increased to £4.50m (2012: £3.56m).

§ 30% increase in Interim Dividend to 0.65p per share (2012: 0.5p).

Highlights - Operational

§ Continued strong cash generation with net cash balance of £4.50m at period end, representing more than 10p per share.

§ Good trading momentum; order book of £1.59m at period end and growing.

§ Gross margins further improved to 87.9% (2012: 84.3%) reflecting delivery of more proprietary software and other 'owned' services.

§ Pre-contracted recurring revenues from continuing operations grew to £3.96m (2012: £3.80m) accounting for approximately 62% of total revenues.

§ 20% increase in multi-channel retail division operating profit to £0.61m (2012: £0.50m); projects during period for Aspinal of London, JoJo Maman Bébé and Axminster Tool Centre with two new customers gained.

§ Manufacturing division maintained operating profit performance at £0.30m (2012: £0.29m); projects during the period for Brookfarm, Anstey Wallpaper and Proctor Paper & Board.

§ Further £0.25m investment in sales and marketing capability.

§ Continued investment in proprietary solutions using mobile technologies generating high levels of interest and development activity.

On current trading and prospects, Mr Winn, added:

"The Board is very mindful of the relatively low levels of business confidence and of continuing challenging trading conditions within the UK and so continues to adopt a very cautious approach. The strong balance sheet and robust business model, coupled with a growing range of products, services and solutions and an improving order book, provide the Sanderson Board and management with a good level of confidence of achieving market expectations for the current year to 30 September 2013".

Enquiries:

Sanderson Group plc:

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

(Nominated Advisor)

SANDERSON GROUP PLC

Interim Results for the six months ended 31 March 2013

Chairman's statement

Introduction

Results for the six month trading period to 31 March 2013 ('the period') show revenues improving to £6.37m (2012: £6.14m) and operating profit rising by over 13% to £0.91m (2012: £0.80m). Sanderson has continued to generate strong cashflow and cash generated from operating activities in the period was £0.89m (2012: Outflow £0.07m). At 31 March 2013, the net cash balance was £4.50m (2012: £3.56m) representing just over 10 pence per ordinary share. The Group's order book at the period end stood at £1.59m (2012: £1.95m).

General UK trading conditions remained challenging during the period and with no discernible improvement in customer and prospective customer confidence, some slippage of expected orders from the period into the second half year occurred. During the period, Sanderson has continued to invest both in its products and services, as well as in its sales and marketing capacity and capability.

Business review

The Sanderson business model has the firm foundation of pre-contracted recurring revenues generated from developing long-term relationships with customers. The Group's solutions comprise Sanderson 'owned' proprietary software integrated, where appropriate, with other market leading products. The Sanderson solution is delivered, installed and supported by the Group's own expert consultants and staff. Solutions are supported and developed on an ongoing basis and offer 'value for money' tangible business benefits for customers, typically providing additional efficiencies and opportunities to make cost savings. Against the current backdrop of challenging economic conditions, the Group has placed an emphasis both on certain sectors which seem more buoyant as well as on the sale of our higher margin proprietary software and services to cover a relative lack of customer capital spend. Partially reflecting the continued transition to more 'owned' software and services, gross margins improved to 87.9% in the period (2012: 84.3%, 2011: 81.4%).

Sanderson solutions are licenced to customers on a 'right to use' basis and are supplemented by support and maintenance services provided by Sanderson staff. Both the licence and ongoing services are pre-contracted and in the period, these recurring revenues grew to £3.96m (2012: £3.80m) representing 62% of total revenues.

Product innovation and investment has continued and over the last three years, the new products and services which have been introduced include Factory & Warehouse automation, Green IT solutions, as well as SaaS ('Software as a Service') and Cloud delivery models. Solutions using mobile technologies, both in response to, as well as in anticipation of customer demand, continue to generate high levels of interest and high development activity. New product developments have accounted for over £4million of new sales over the last five years and the latest solutions which are enabled by mobile technologies are currently accounting for around 10% of total sales orders. 

Additional investment has been made in the areas of sales and marketing with the aim of more effectively promoting the Group's solutions. Since 2009, the Group has made cost savings in the management, finance and administrative functions and redeployed this expenditure into the areas of sales and marketing. A further four people were added during the period at an annual cost of approximately £250,000 and it is anticipated that there will be a growing return from this investment during the second half of the current year.

The pre-Christmas trading period is a busy time for both food and drink manufacturers, as well as for businesses operating in the multi-channel retail sector. Whilst Sanderson pre-sales and support activities are high in this first quarter, customer decisions confirming the adoption of new systems are more likely to be made between February and September, giving the Group's results a level of seasonality. The Group gained three new customers in the period (2012: nine) at an average value of £61k (2012: £76k). As at the date of this report, though we expect UK trading conditions to remain challenging in the short term, activity levels have improved since the period end and the Group has gained a further four new customers at an average initial contract value of over £200k. 

Review of multi-channel retail

Sanderson provides comprehensive IT solutions to businesses operating in the areas of online sales, ecommerce, mail order and catalogue sales, wholesale distribution, cash and carry businesses and retail shops. Whilst traditional mail order markets are currently quite slow, there are better levels of business activity in the wholesale cash and carry, catalogue, online sales and ecommerce markets.

Two new customers were gained during the period compared with six in the comparative period of 2012. Both new customers operate in the online sales and ecommerce area of business. Projects during the period included a store portal for a large jewellery chain, as well as enhancements to systems for companies such as Aspinal of London, JoJo Maman Bébé, Joe Browns, Axminster Tool Centre and Topgrade Sportswear.

Divisional revenue was £3.40m (2012: £3.20m) and operating profit was up by over 20% at £614k (2012: £508k, 2011: £403k). The period end order book was strong at £822k (2012: £1.27m) and with good sales prospects, the business is well positioned to continue its growth and to achieve trading targets for the current year ending 30 September 2013.

Review of manufacturing

Businesses in the engineering, plastics, aerospace, electronics, print and food and drink manufacturing sectors represent the main areas of specialisation for Sanderson in manufacturing markets. Over the past two years, the Group has invested an additional £500k in some accelerated product development and in its sales and marketing capability for the Sanderson business which addresses the UK food and drink market. Traceability of products and ingredients back through the supply chain, is a strong feature of the Sanderson food and drink solution - a key requirement for the food and drink industry. The Group has a number of well advanced sales prospects and continues to be active in this sector. 

A Sanderson mobile solution, deploying iPads and touchscreens for a manufacturer who operates a number of direct retail outlets has recently been installed. Since the period end, the Group has gained a large order with another manufacturer who also operates through direct retail outlets. The general manufacturing market has continued to be quite slow with one new customer gained in the period (2012: three new customers). Large projects delivered during the period included Brookfarm, a processor of macadamia nut products, Anstey Wallpaper Company, Tunnock's biscuits and Proctor Paper & Board.

Revenue for the period was £2.97m (2012: £2.95m) and operating profit was £296k (2012: £293k). Divisional recurring revenues represent 64% (2012: 62%) of total revenues and cover 82% of divisional overheads. The order book of £761k (2012: £784k) is strong and together with a good short-term sales prospect list should ensure an improved trading result for the second half year.

Strategy

The Group strategy is to build upon and develop our position as a provider of modern software solutions which continue to provide customers with competitive advantage and cost efficiencies. This will enable Sanderson to achieve growth, build value and improve shareholder returns. Whilst Sanderson will continue to invest across its businesses, particular emphasis and focus will be made in further developing the range and scope of solutions for online sales and ecommerce businesses as well as the development of mobile solutions across all of the Group's target markets. Selective acquisition opportunities will also be made to augment organic growth and a number of small opportunities are being considered.

Balance sheet

In the current economic climate, the Board feels that a strong balance sheet with readily available cash resources is important. Sanderson has continued to convert substantially all of its profit to cash and has reported a net cash balance of £4.50m at 31 March 2013. Notwithstanding the Group's strategy and the goal to invest cash resources to achieve business objectives, Sanderson will endeavour to continue to accrue cash from ongoing trading operations in order to ensure the strength of the balance sheet.

Dividend

The Board has been committed to improve dividend levels and is pleased to declare an increased interim dividend of 0.65 pence per share (2012: 0.50 pence, 2011: 0.30 pence), to be paid on 16 August 2013, to shareholders on the register at the close of business at 19 July 2013. 

Management and staff

The Group employs approximately 150 staff who have a high level of experience and expertise, the majority of which are exclusively focused on the specialist markets which the Group addresses. The Board would like to thank everyone for their support, hard work, dedication and contribution to the development of the business over the period of recovery, business transition and renewed growth, since 2009.

Outlook

The Board is very mindful of the relatively low levels of business confidence and of challenging trading conditions within the UK and so, continues to adopt a very cautious approach. The strong balance sheet and robust business model, coupled with a growing range of products, services and solutions and a good order book, provide the Sanderson Board and management with a good level of confidence of achieving market expectations for the current year to 30 September 2013.

Christopher Winn

Chairman

5 June 2013

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six month period to 31 March 2013

For the six month period to 31 March 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

For the year ended 30 September 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE INTERIM RESULTS

1. Basis of preparation

The Group's interim results for the six month period ended 31 March 2013 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 2013. 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 4 June 2013.

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 2012, 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.

Revenue, operating profit and profit before tax shown above report continuing operations only. The Group disposed of its subsidiary undertaking Sanderson RBS Limited on 20 January 2012 (see note 4). The discontinued operation generated revenue in the comparative period of £3.53m (£3.53m for the full year to 30 September 2012). The operating result of the discontinued operation for the comparative period, stated after amortisation of acquisition related intangibles and shared based payment charges, was a loss of £0.4m (full year to 30 September 2012; loss of £0.4m).

3. Net finance costs

4. Discontinued operation

The Group disposed of its wholly owned subsidiary, Sanderson RBS Limited on 20 January 2012. The Consolidated Income Statement for the comparative six month period ending 31 March 2012 and for the financial year ended 30 September 2012 reports the result of Sanderson RBS Limited, together with the profit arising on disposal, as a single line item 'Profit on discontinued operation, net of tax'. Earnings per share disclosures and the Consolidated Statement of Cash Flow also present information in respect of Sanderson RBS Limited separately.

Term debt advanced by the Group's banker, HSBC Bank Plc, was repaid in full ahead of schedule in January 2012 following the disposal. An early repayment fee, together with unamortised arrangement fees relating to the loan were treated as exceptional finance costs in the comparative period.

Further details in respect of the disposal of Sanderson RBS Limited are available in the Annual Report and Accounts for the year ended 30 September 2012.

5. Earnings per share

6. Equity dividends paid

7. 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.