2006 Final Results
Sanderson Group PLC
06 December 2006
FOR IMMEDIATE RELEASE 6 DECEMBER 2006
SANDERSON GROUP PLC
Preliminary Results for the year ended 30 September 2006
Sanderson Group plc ('Sanderson' or 'the Group'), the software and IT services
business specialising in commercial markets in the UK and Ireland, announces its
Preliminary Results for the year ended 30 September 2006. Sanderson provides
software and IT services to businesses with annual revenues between £5 million
and £250 million.
Key Points
• Revenue of £16.15 million (2005: £15.46 million) up 4.5%
• Operating profit* of £3.13 million (2005: £2.91 million) up 7.6%
• Statutory operating profit of £2.17 million (2005: £1.27 million)
• Improvement in gross margin to 84% (2005: 80%)
• Recurring revenues 55% of total revenue (2005: 53%)
• Proposed final dividend of 1.5 pence per ordinary 10 pence share
making a total for the year of 2.6 pence (2005: 2.5 pence) up 4.0%
• Sanderson Retail Systems acquisition integrated and performing
profitably
• 25 new customers won during the year (2005: 17)
*Before amortisation of intangible assets, share based payment expense and 2005
non-recurring administrative expense.
Commenting on the results, Chairman, Christopher Winn, said:
'The results reflect 10% growth in gross margin, achieved on increased revenues.
This improvement is due to an increase in the proportion of the Group's own
software and services supplied and demonstrates the benefit of Intellectual
Property Rights (IPR) ownership.
Our strategy is to develop the Group by a combination of organic growth
complemented by selective acquisitions. Our primary aim is to continue to
deliver shareholder value through a progressive dividend policy which is made
possible by a business model that delivers high levels of profit and cash. We
continue to work on bringing a number of acquisition opportunities to fruition
in the coming year
We are encouraged by the substantially increased level of sales prospects across
the Group and notwithstanding challenges in some of our markets there are clear
opportunities, especially within the Multi-Channel Sales sector, and we intend
to accelerate the rate of progress over the coming year'.
Enquiries:
Sanderson Group plc
Christopher Winn, Executive Chairman Tel: 02476 555466
David O'Byrne, Managing Director Tel: 01709 787787
Adrian Frost, Finance Director Tel: 01709 787787
Winningtons Financial
Paul Vann Tel: 020 7256 9445
Mob: 07768 807631
SANDERSON GROUP PLC
Preliminary Results for the year ended 30 September 2006
CHAIRMAN'S STATEMENT
Introduction
The Group has adopted International Financial Reporting Standards (IFRS) for the
first time, and comparative results have been restated accordingly. The trading
results for the year to 30 September 2006 show turnover of £16.15 million (2005:
£15.46 million) and statutory operating profit of £2.17 million (2005: £1.27
million). Operating profit before amortisation, non-recurring items and share
based payment expense amounted to £3.13 million (2005: £2.91 million).
Trading Results
2006 2005
£000 £000
Revenue 16,149 15,460
Cost of sales (2,607) (3,123)
----------- -------------
Gross profit 13,542 12,337
Administrative expenses* (10,407) (9,429)
----------- -------------
3,135 2,908
Operating profit*
Amortisation of acquisition related intangibles (319) (104)
Share based payment expense (642) (458)
Non-recurring administrative expenses - (1,076)
----------- -------------
Profit before interest and tax 2,174 1,270
Net interest expense (275) (708)
----------- -------------
Profit before income tax 1,899 562
Income tax credit/(expense) 96 (67)
----------- -------------
Profit for the year 1,995 495
=========== =============
*Before amortisation of intangible assets, share based payment expense and 2005
non-recurring administrative expense.
The results reflect 10% growth in gross margin, achieved on an increase in
revenues of 4%. This is due to an increase in the proportion of the Group's own
software and services supplied and demonstrates the benefit of IPR ownership. We
completed the acquisition of Sanderson Retail Systems Limited (SRS) in February
2006, and the business has made an encouraging contribution to Group
profitability.
The effective rate of corporation tax in the year to September 2006 is less than
30% as a result of an overprovision for tax in prior years.
Balance Sheet
The profile of the balance sheet changed following the acquisition of SRS with
debtors and deferred income increasing as a direct result. Since completing the
acquisition, debtor levels have reduced but deferred income remains higher than
at the previous year end due to the long-term nature of some of the SRS customer
contracts.
Cash generation remains sound and cash generated from operations was 81% of
operating profit before amortisation and share based payment expense. Net debt
of £2.48 million has reduced from the post-acquisition peak of £3.26 million at
the half-year. This low level of debt, combined with undrawn borrowing
facilities, enables the Group to pursue further acquisitions.
Dividends
The Board is keen to ensure that shareholders benefit from the trading
performance of the Group through a progressive dividend policy. Subject to
approval at the Annual General Meeting of Shareholders, expected to be held on 6
February 2007, a final dividend of 1.5 pence per ordinary share is proposed and
will be paid on 9 March 2007 to shareholders on the register at the close of
business on 9 February 2007. Together with the interim dividend of 1.1 pence per
ordinary share, this final dividend represents a total dividend for the year of
2.6 pence, an increase of 4%.
Business Review
The Group has established a large client base over many years and has adopted a
revenue model based upon retaining and developing clients by continuously
offering new products and associated technology, together with professional
services. Historically, over 50% of annual revenue is derived from recurring
licence, support and maintenance contracts, with approximately 40% of revenue
being derived from additional products and services supplied to existing
clients. New clients account for the remaining 10% of revenue.
For the year ended 30 September 2006, recurring revenue continued to grow and
represented 55% of total revenue compared with 53% last year. 25 new clients
were won in the year, compared with 17 in the previous year and these new
clients accounted for 9% of revenue. The average order value from new clients
was around £60,000 with the largest individual client contributing just under
£200,000. The reduction in the level of discretionary spend from existing
clients in the Manufacturing sector experienced in the previous financial year
continued into the current year.
The Group's software products are designed to meet all the operational needs of
a broad range of businesses and cover functions such as sales and marketing,
finance, human resources, purchasing, production, supply and distribution whilst
also addressing specific requirements such as ingredient handling and call
centre operations. Sanderson owns and develops the IPR to its software products
and licences their use to customers.
The Group also provides consultancy services to assist in the set-up,
installation and implementation of software in addition to the provision of
general IT advice. Customers also contract for ongoing technical support and
maintenance services.
During the year, 72% of Group revenues were generated from the sale of software
products, with the remaining 28% arising from the provision of associated
consultancy services. This compares to 75% for software and 25% for consultancy
during the previous year and resulted in an increase in gross margin from 80% to
84%.
The acquisition of SRS provided the opportunity to reposition the Group, which
now addresses two principal market sectors.
Review of Manufacturing
The Manufacturing sector accounted for 46% of Group revenue, compared with 60%
two years ago. Manufacturing covers the provision of IT solutions to the
engineering, plastics, electronics, furniture, automobile parts and print
markets, as well as specialist solutions for the food industry. Market
conditions continue to be challenging in this sector with discretionary spend
lower than in previous years. By focusing on the delivery of our own software
and services together with strict overhead controls, we have maintained a good
level of profitability. The food industry has proved to be an active sector and
we have been successful in gaining five new customers in the year including
Sodexho, Nutri-Care, Kingfisher (Brixham) Limited.
Review of Multi-Channel Sales
This sector accounted for 54% of Group revenue. Multi-Channel Sales addresses
the needs of companies who sell goods via retail outlets, online sales, call
centres, mail order and via distributors. Increasing competition and the rapid
growth in online sales have encouraged companies to seek efficiency gains
through investment in IT, representing a significant opportunity for the Group.
New customers gained during the year included Homeserve, Echo, Hayloft Plants
and Help the Aged. The Group is developing a large number of sales opportunities
in what is proving to be an active market sector and this will be a major focus
for the Group in the coming year.
Strategy
Our customers continue to focus on the benefits derived from their investment in
IT solutions, with efficiency improvements and process re-engineering being key
factors in their decision to commit to new projects. We believe that the quality
of our products and our development strategy address these key requirements,
though the increasing length of the decision-making cycle is now generally
acknowledged to be a feature of the markets in which we operate. Our strategy is
to develop the Group by a combination of organic growth complemented by
selective acquisitions. Our primary aim is to continue to deliver shareholder
value through a progressive dividend policy which is made possible by a business
model that delivers high levels of profit and cash. We continue to develop a
number of acquisition opportunities for the coming year.
Staff
We would like to thank our colleagues for their commitment, expertise, and
continued dedication in working with our customers and partners.
Outlook
We are encouraged by the substantially increased level of sales prospects across
the Group and notwithstanding challenges in some of our markets there are clear
opportunities, especially within the Multi-Channel Sales sector, and we intend
to accelerate the rate of progress over the coming year.
Christopher Winn
Chairman
6 December 2006
Consolidated income statement
for the year ended 30 September 2006
2006 2005
£000 £000
Note
Revenue 16,149 15,460
Cost of sales (2,607) (3,123)
-------- --------
Gross Profit 13,542 12,337
Technical and development costs (6,468) (5,433)
Administrative expenses (3,590) (3,085)
Sales and marketing costs (1,429) (1,473)
Other operating income 3 119 -
Other operating expenses 4 - (1,076)
-------- --------
Results from operating activities 2,174 1,270
Results from operating activities before amortisation,
share based payment expense and non-recurring expenses 3,135 2,908
Amortisation of acquisition related intangibles (319) (104)
Share based payment expense 5 (642) (458)
Non-recurring administrative expenses - (1,076)
-------- --------
Results from operating activities 2,174 1,270
Net finance expense 6 (275) (708)
-------- --------
Profit before tax 1,899 562
Taxation 7 96 (67)
-------- --------
Profit for the year attributable to equity holders of
the parent 1,995 495
======== ========
Earnings per share
Basic earnings per share 4.8p 1.2p
======== ========
Diluted earnings per share 4.5p 1.1p
======== ========
Consolidated balance sheet
at 30 September 2006
2006 2005
£000 £000
Non-current assets
Intangible assets 27,051 23,670
Property, plant and equipment 585 914
Deferred tax assets 488 1,051
-------- --------
28,124 25,635
-------- --------
Current assets
Inventories 258 103
Trade and other receivables 4,127 3,788
Income tax receivable 211 -
Cash and cash equivalents 463 524
-------- --------
5,059 4,415
-------- --------
Current liabilities
Bank loans and borrowings (528) (760)
Trade and other payables (2,351) (3,216)
Income tax payable - (455)
Deferred income (4,278) (4,050)
-------- --------
(7,157) (8,481)
-------- --------
Net current liabilities (2,098) (4,066)
Total assets less current liabilities 26,026 21,569
Non-current liabilities
Loans and borrowings (2,420) (1,380)
Employee benefits (1,849) (2,480)
Deferred consideration (464) -
Deferred income (587) -
-------- --------
(5,320) (3,860)
-------- --------
Net assets 20,706 17,709
======== ========
Equity attributable to equity holders of the Company
Share capital 4,181 4,081
Share premium 14,578 14,183
Shares to be issued 495 -
Retained earnings 1,452 (555)
-------- --------
Total equity 20,706 17,709
======== ========
Consolidated cash flow statement
for the year ended 30 September 2006
2006 2005
Note £000 £000
Cash flows from operating activities
Profit for the period 1,995 495
Adjustments for:
Amortisation of intangible assets 319 104
Depreciation 160 143
Share based payment expense 642 458
Net finance expense 297 708
Income tax expense (96) 67
Profit on disposal of property, plant and equipment (119) -
--------- ---------
Operating cash flow before changes in working
capital and provisions 3,198 1,975
Movement in trade and other receivables 934 626
Movement in inventories (51) -
Movement in trade and other payables (1,394) (484)
Payments to employee benefit plan (80) (74)
--------- ---------
Cash generated from operations 2,607 2,043
Interest paid (178) (329)
Income tax paid (639) (92)
--------- ---------
Net cash from operating activities 1,790 1,622
--------- ---------
Cash flow from investing activities
Interest received - 28
Proceeds from sales of property, plant and equipment 530 -
Purchase of plant and equipment (120) (107)
Development expenditure capitalised (271) (136)
Purchase of intellectual property (200) -
Acquisition of subsidiary (1,480) (857)
--------- ---------
Net cash flow from investing activity (1,541) (1,072)
--------- ---------
Cash flow from financing activities
Proceeds from issue of shares - 5,795
Proceeds from bank borrowing 1,375 2,500
Repayment of bank borrowing (625) (5,660)
Repayment of external borrowing - (4,000)
Repayment of finance lease principal (36) -
Equity dividends paid (1,024) (445)
--------- ---------
Net cash flow from financing activities (310) (1,810)
--------- ---------
Net decrease in cash and cash equivalents (61) (1,260)
Cash and cash equivalents at beginning of year 524 1,784
--------- ---------
Cash and cash equivalents at the end of the year 9, 10 463 524
========= =========
Notes
1 Financial statements
The financial information set out herein does not constitute the Group's
statutory accounts for the year ended 30 September 2006 but is derived from
those financial statements. The statutory accounts will be finalised on the
basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the registrar of companies
following the Annual General Meeting. The comparative information in respect of
the period ended on 30 September 2005 has been derived from the audited
statutory accounts for the year ended on that date, as restated for the first
time adoption of International Financial Reporting Standards (IFRS) as referred
to below, upon which an unqualified audit opinion was expressed and which did
not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
The audited financial statements will be available by contacting the Company
Secretary at the Company's Registered Office.
2 Basis of preparation
The financial information has been prepared and approved by the directors in
accordance with IFRS as adopted by the European Union.
The first time adoption of IFRS has impacted on the year's results. The
principal changes relate to:
• acquisition of subsidiaries (treatment of goodwill and
intangible assets);
• employee benefits (pension scheme accounting);
• share based payments;
• recording of dividends in the period paid;
• treatment of software development in accordance with IAS 38 where certain
strict criteria are met.
The net impact of the restatement of last year's figures was to increase profit
for the period from a loss for the year of £549,000 to a profit for the year of
£495,000. Net assets increased from £16.54 million to £17.71 million.
The rules for first time adoption of IFRS are set out in IFRS 1 'First time
adoption of international financial reporting standards'. In general, a company
is required to determine its IFRS accounting policies and apply these
retrospectively to determine its opening balance sheet under IFRS. The standard
allows a number of exceptions to this general principle to assist companies as
they change to reporting under IFRS. The Group has taken advantage of the
following exemptions:
• Business combinations that took place prior to the date of transition have
not been restated;
• At the date of transition, previous UK GAAP valuations have been used as
deemed cost for properties;
• All cumulative actuarial gains and losses on defined benefit schemes have
been recognised in equity at the date of transition.
3 Other operating income
Other income represents the net gain arising on the sale of property, plant and
equipment (2005: no such income).
4 Other operating expenses
No such expenses were incurred in the current year. Other expenses arising in
2005 represent the expenses and associated reorganisation costs incurred in
relation to the admission of Sanderson Group plc to AIM on 16 December 2004.
5 Share based payments
The Group operates a sharesave scheme, an Inland Revenue approved Executive
Management Incentive plan (EMI), an unapproved share option plan and a Long Term
Incentive Plan (LTIP). The share based payment expense represents the fair value
of the cost for the year of these share based payment arrangements to the Group.
6 Net finance expense
2006 2005
£000 £000
Loan note discount - 329
Bank facility arrangement fees - 175
---------- ----------
Total non-recurring finance expenses - 504
Bank interest payable 154 187
Bank interest receivable - (28)
Other interest 24 -
Net interest on defined benefit pension scheme 75 45
obligations
Discount on deferred cash consideration 22 -
---------- ----------
275 708
========== ==========
Non-recurring finance expense relates to the capital and debt structure of the
Company in place prior to the admission to AIM on 16 December 2004.
7 Taxation
2006 2005
Recognised in the income statement: £000 £000
Current tax expense
UK corporation tax for the current year 600 429
Relating to prior periods (515) 38
---------- ----------
Total current tax 85 467
========== ==========
Deferred tax
UK deferred tax for the current year (154) 5
Relating to prior periods (27) (405)
---------- ----------
Total deferred tax (181) (400)
---------- ----------
Taxation (credited)/charged to the income statement (96) 67
========== ==========
8 Dividends
2006 2005
£000 £000
Interim dividend of 1.1p per share, (2005: 1.1p) 452 445
Final dividend relating to previous financial year
of 1.4p per share (2005: nil) 572 -
--------- -----------
Total dividend for the financial year 1,024 445
========= ===========
9 Reconciliation of net cash to net funds
2006 2005
£000 £000
Decrease in cash and cash equivalents (61) (1,260)
(Increase)/decrease in debt and finance leases (714) 18,420
--------- ----------
(Decrease)/increase in net funds from cash flows (775) 17,160
Finance leases acquired with subsidiary (94) -
--------- ----------
(Decrease)/increase in net funds (869) 17,160
Net debt at beginning of year (1,616) (18,776)
--------- ----------
Net debt at end of year (2,485) (1,616)
========= ==========
10 Analysis of net debt
At start of Cash flow Arising on At end
period acquisition of of period
subsidiary
£000 £000 £000 £000
Cash 524 (61) - 463
Bank loan:
Within one year (760) 260 - (500)
After one year (1,380) (1,010) - (2,390)
Obligations under finance leases - 36 (94) (58)
------- -------- ------- -------
Net debt (1,616) (775) (94) (2,485)
======= ======== ======= =======
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