Interim Results
Sanderson Group PLC
04 May 2006
For Immediate Release 4 May 2006
SANDERSON GROUP PLC
2006 Interim Results
'Repositioned to deliver further growth'
Sanderson Group plc ('Sanderson' or 'the Group), an established provider of
software and IT services to UK commercial markets focusing on manufacturing and
multi-channel distribution, announces interim results for the six months to 31
March 2006. The Group provides software and IT services to businesses with
annual turnovers typically between £5million and £250million.
Key Points
• Turnover of £7.435million (2005: £7.897million)
• Adjusted operating profit of £1.233 million* (2005: £1.317million*)
• Operating profit of £0.251m (2005: loss of £0.378m)
• Profit before tax of £0.283million (2005: £1.024million loss)
• Gross margin increased 6% reflecting favourable sales mix;
recurring revenues increased to 56% of sales
• Net debt at period end was £3.2million; capacity for further
strategic acquisitions
• Interim Dividend of 1.1p per Ordinary 10p Share (2005: 1.1p)
• Adjusted earnings per share - basic* 2.21p (2005: 1.62p#);
diluted* 2.11p (2005: 1.56p#)
• Unadjusted loss per share, basic and diluted 0.19p (2005
restated: 2.35p)
• Megabyte Limited (now trading as Sanderson Retail Systems)
acquired in February performing well
* Before amortisation, exceptional administrative expenses and LTIP charges
# Adjusted for the effect of pre-admission share structure
Commenting on the results, Executive Chairman Christopher Winn said:
'The acquisitions of Sanderson Retail Systems and PCSL in the last twelve months
have provided the opportunity to reposition the Group, which now addresses two
principal market sectors - Multi-Channel Sales and Manufacturing. Further
acquisition opportunities are being actively developed.'
On prospects, Mr Winn added:
'The Board is encouraged by the trading performance of the Group in the second
quarter to 31 March 2006, and there is a strong pipeline of sales prospects
entering the second half year, some of which have already been converted into
firm orders. The Board anticipates a satisfactory outcome for the current year.'
Enquiries:
Christopher Winn, Executive Chairman Tel: 02476 555466
David O'Byrne, Group Managing Director Tel: 01709 787787
Paul Vann, Winningtons Financial Tel: 0117 920 0092
CHAIRMAN'S STATEMENT
Introduction
The trading results for the six months to 31 March 2006 show turnover of
£7.435 million and operating profit of £251,000. Operating profit before
amortisation, exceptional items and LTIP charges amounted to £1.233 million.
Trading Results
The trading results for the six months to 31 March 2006 are summarised below:
Six months to Six months to
31 March 2006 31 March 2005
(unaudited) (unaudited)
£000 £000
Turnover 7,435 7,897
Cost of sales (1,204) (1,774)
----------- -----------
Gross profit 6,231 6,123
Administrative expenses (4,998) (4,806)
----------- -----------
Adjusted operating profit* 1,233 1,317
Amortisation, LTIP charges & exceptional
administrative expenses (982) (1,695)
----------- -----------
Operating profit / (loss) 251 (378)
Profit on disposal of fixed assets 128 -
Bank interest payable (69) (119)
Non-recurring interest - (504)
Other finance costs (27) (23)
----------- -----------
Profit / (loss) on ordinary activities before
taxation 283 (1,024)
----------- -----------
Adjusted earnings per share - basic* 2.21p 1.62p#
Adjusted earnings per share - diluted* 2.11p 1.56p#
* Before amortisation, exceptional administrative expenses and LTIP charges.
# Adjusted to remove the effect of pre-admission share structure.
The absence of exceptional, non-recurring costs relating to the period prior to
the Group's admission to AIM in December 2004 has enabled the Group to report a
profit before taxation which compares favourably with the comparative period, in
which exceptional non-recurring costs were reported.
The Group disposed of its surplus property at Huntingdon during the period,
generating a profit on disposal of £128,000.
Dividends
An interim dividend of 1.1 pence per ordinary share is being declared and will
be paid on 14 July 2006 to shareholders on the register at the close of business
on 16 June 2006.
Acquisition
In February 2006, the Group acquired Megabyte Limited for a maximum
consideration of £2.5 million. The business now trades as Sanderson Retail
Systems Limited and the marketing of the Sanderson brand in the retail sector is
expected to generate additional business opportunities. In the five weeks since
acquisition trading was slightly above expectations and contributed 6% to the
Group's turnover. Sanderson Retail Systems complements the activities of
existing Sanderson businesses, particularly Sanderson PCSL, Mail Order and
Wholesale Distribution and a number of cross-selling opportunities are actively
being developed.
Balance Sheet
The profile of the balance sheet has changed as a result of the acquisition of
Sanderson Retail Systems in February with stock, debtors and deferred income
increasing as a direct result. We are confident that, once fully integrated,
improved cash generation will be achieved from this business.
With net debt of £3.2m, the Group has the capacity to pursue additional
strategic acquisitions.
Business Review
Towards the end of the last financial year ended 30 September 2005, the Group
experienced a slowdown in the level of discretionary spend from some of its
clients, most markedly, in the manufacturing sector. This slowdown in spending
from the Group's manufacturing clients has continued into the current year,
however after a slow first quarter up to the end of December, overall activity
levels have been good and trading in the second quarter has been slightly ahead
of the comparative quarter last year.
Whilst the level of turnover is slightly lower (6%) than the comparative period
last year, gross margin has increased by over 6% to 84%, reflecting a favourable
turnover mix with more Sanderson owned IPR and services being provided.
The Group has built up 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. These provide clients with a good return on investment. Historically,
more than 50% of turnover arises from recurring licence, support and maintenance
contracts, with a further 40% of turnover being derived from additional products
and services to existing clients and the balance is derived from new customers.
For the period to 31 March 2006, recurring revenues continued to increase and
represented 56% of Group turnover. Eight new clients were gained in the period,
compared with five in the comparative period last year, though the average order
value was lower at just over £70,000.
Approximately 76% of the Group's turnover was generated from the sale of
software products, with the remaining 24% represented by the provision of
associated consultancy services. These figures remain unchanged from the
previous period.
The Group's software products are designed to meet all the operational needs of
a broad range of businesses and cover functions common to all customers, from
sales and marketing through to 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.
Customers who contract for a new or upgraded system also contract for
consultancy services. These cover the provision of experienced Sanderson
personnel who assist in the set-up, installation and implementation of the
software as well as the provision of general IT advice. Customers also make
annual payments for ongoing technical support and maintenance services.
Markets
The acquisitions of Sanderson Retail Systems and PCSL in the last twelve months
have provided the opportunity to reposition the Group, which now addresses two
principal market sectors.
Multi-Channel Sales incorporates Wholesale Distribution (including cash and
carry), Mail Order and the Retail Sector. The recent acquisitions have
considerably strengthened our position in this market sector and this is now the
largest part of the Group. New contracts were won with Thompson & Morgan, Folio
Society, Homeserve and Echo amongst others. Multi-Channel Sales accounted for
51% of Group turnover in the period compared with 40% in the comparative period
last year.
Manufacturing covers the provision of solutions to the engineering, plastics,
electronics, furniture, automobile parts and print markets, as well as
specialist solutions for the food industry. Though trading was generally slow in
this market sector, a number of new contracts were won during the period.
Manufacturing accounted for 49% of Group turnover in the period compared with
60% in the comparative period last year.
Strategy
The Group strategy is to build on its leading market position as a specialist
provider of software and IT services by a combination of organic growth and
selective acquisitions to enhance the size, profitability and earnings of the
Group.
Staff
We would like to thank all our colleagues and staff for their commitment,
expertise, and continued dedication in working with our customers and partners
to successfully develop our business.
Outlook
The Group has been strengthened by the two acquisitions which have been made in
the last year and further acquisition opportunities are being actively
developed. The Board is encouraged by the trading performance of the Group in
the second quarter to 31 March 2006, and there is a strong pipeline of sales
prospects entering the second half year, some of which have already been
converted into firm orders.
The Board anticipates a satisfactory outcome for the current year.
Christopher Winn
Chairman
4 May 2006
CONSOLIDATED PROFIT & LOSS ACCOUNT
for the six months ended 31 March 2006
Notes Continuing Acquisitions Group Group Group
operations
31 March 2006 31 March 2006 31 March 2006 31 March Year ended
2005 30 September 2005
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
£000 £000 £000 Restated Restated
£000 £000
Turnover 6,952 483 7,435 7,897 15,460
Cost of sales (1,088) (116) (1,204) (1,774) (3,123)
-------- -------- -------- -------- ---------
Gross profit 5,864 367 6,231 6,123 12,337
Administrative
expenses (5,691) (289) (5,980) (6,506) (12,156)
-------- -------- -------- -------- ---------
Operating profit before
amortisation,exceptional
items and LTIP charges 1,155 78 1,233 1,317 2,822
LTIP charges 2 (204) - (204) (102) (310)
Goodwill amortisation 3 (778) - (778) (577) (1,255)
Exceptional
administrative expense 4 - - - (1,016) (1,076)
-------- -------- -------- -------- ---------
Operating profit/(loss) 173 78 251 (378) 181
Profit on disposal of
fixed assets 128 - -
-------- -------- -------- -------- ---------
Interest on
bank debt 5 (69) (119) (187)
Non-recurring
interest 5 - (504) (504)
-------- -------- -------- -------- ---------
Interest payable (69) (623) (691)
Interest receivable - - 28
Other finance costs (27) (23) (46)
-------- -------- -------- -------- ---------
Profit/(loss) on
ordinary activities
before taxation 283 (1,024) (528)
Taxation (360) (14) (73)
-------- -------- -------- -------- ---------
Loss on ordinary
activities for
the financial period (77) (1,038) (601)
======== ======== ======== ======== =========
Basic loss per
share (pence) 6 (0.19p) (2.35p) (1.42p)
Fully diluted
loss per share (pence) 6 (0.19p) (2.35p) (1.42p)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES
for the six months ended 31 March 2006
Group Group Group
31 March 2006 31 March Year ended
2005 30 September
2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Loss on ordinary activities for the
financial period (77) (1,038) (601)
Actuarial loss recognised in the
pension scheme - - (1,052)
Deferred tax arising on losses
recognised in the pension scheme - - 316
-------- -------- ---------
- - (736)
Total recognised losses for the
financial period (77) (1,039) (1,337)
======== =========
Prior year adjustment (note 12) (563)
--------
Total losses recognised since last
annual report (640)
========
CONSOLIDATED BALANCE SHEET
as at 31 March 2006
Notes 31 March 31 March 30 September
2006 2006 2005
(unaudited) (unaudited) (audited)
Restated Restated
£000 £000 £000
Fixed Assets
Intangible assets 3 24,933 21,756 22,949
Tangible assets 637 879 914
--------- --------- ---------
25,570 22,635 23,863
Current assets
Stocks 409 103 103
Debtors 7 6,732 3,850 4,188
Cash at bank and in hand 413 526 524
--------- --------- ---------
7,554 4,479 4,815
Creditors: amounts falling
due within one year 8 (10,955) (8,225) (9,008)
--------- --------- ---------
Net current liabilities (3,401) (3,746) (4,193)
--------- --------- ---------
Total assets less current
liabilities 22,169 18,889 19,670
Creditors: amounts falling
due after more than one year 9 (3,374) (1,010) (1,380)
--------- --------- ---------
Net assets excluding pension
liability 18,795 17,879 18,290
Net pension liability (1,723) (1,005) (1,736)
--------- --------- ---------
17,072 16,874 16,554
--------- --------- ---------
Capital and reserves
Share capital 4,181 4,044 4,081
Shares to be issued 495 - -
Share premium 14,578 13,970 14,183
Profit & loss account 10 (2,182) (1,140) (1,710)
--------- --------- ---------
17,072 16,874 16,554
--------- --------- ---------
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 March 2006
Group Group Group
31 March 31 March Year ended
2006 2005 30 September
2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Net cash inflow from operating
activities 669 795 1,907
Returns on investments and servicing
of finance (109) (119) (301)
Taxation (410) - (92)
Capital expenditure and financial
investment 477 (54) (107)
Acquisitions (1,637) - (857)
Equity dividends paid (575) - (445)
-------- -------- ---------
Net cash (outflow) / inflow before
financing (1,585) 622 105
Movement in loans 1,285 (3,675) (3,160)
Capital element of hire purchase
repayments (8) - -
Issue of ordinary shares - 5,795 5,795
Repayment of loan notes - (4,000) (4,000)
-------- -------- ---------
Decrease in cash and cash
equivalents in the period (308) (1,258) (1,260)
-------- -------- ---------
Reconciliation of net cash inflow
from operating activities
Operating profit / (loss) 251 (378) 181
Depreciation and amortisation 857 682 1,398
LTIP charges 204 102 310
Increase in stocks (39) - -
(Increase) / decrease in debtors (1,306) 173 626
Increase / (decrease) in creditors 702 216 (608)
-------- -------- ---------
Net cash inflow from operating
activities 669 795 1,907
-------- -------- ---------
30 September Cashflow Acquisition Non-cash 31 March
2005 changes 2006
£000 £000 £000 £000 £000
Reconciliation of
movement in net debt
Cash at bank 524 (111) - - 413
Overdraft - (197) - - (197)
--------- -------- -------- -------- --------
Net cash 524 (308) - - 216
Bank debt
due within one
year (760) 10 - - (750)
due after more
than one year (1,380) (1,295) - 39 (2,636)
Capital element of hire
purchase
due within one year - - (32) - (32)
due after more than one year - 8 (62) - (54)
--------- -------- -------- -------- --------
(1,616) (1,585) (94) 39 (3,256)
--------- -------- -------- -------- --------
NOTES TO THE ACCOUNTS
1. The interim results for the periods ended 31 March 2006 and 31 March
2005 are unaudited and do not constitute statutory accounts within the meaning
of s.240 of the Companies Act 1985. They comply with relevant accounting
standards and have been prepared on a consistent basis using the accounting
policies set out in the 2005 statutory accounts. The comparative figures for the
financial period ended 30 September 2005 are not the company's statutory
accounts for that financial year. Those accounts have been reported on by the
company's auditors and delivered to the registrar of companies. The report of
the auditors was unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
2. LTIP charges represent the amount chargeable to the profit and loss
account in the period in respect of the Long Term Incentive Plan. An assumption
has been made that all awards under the Plan will vest at the end of the three
year performance period.
3. The directors consider each acquisition separately for the purpose of
determining the amortisation period of any goodwill that arises. Goodwill
relating to the acquisition of Sonarsend Limited and the Sanderson trade in 2003
is being amortised over a period of 20 years. Goodwill arising on the
acquisition of Sanderson PCSL Limited in 2005 is being amortised over a period
on 5 years. Goodwill arising on the acquisition of Sanderson Retail Systems
Limited in 2006 is being amortised over a period of 10 years. In all cases the
directors consider the periods to approximate to the useful economic lives of
the businesses acquired.
4. Exceptional items represent the expenses and associated preparation
reorganisation costs incurred in relation to the admission of Sanderson Group
plc to AIM on 16 December 2004.
5. Interest comprises:
Group Group Group
31 March 31 March Year ended
2006 2005 30 September
2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Unsecured loan note interest - 329 329
Write-off of facility fees - 175 175
-------- -------- ---------
Total non-recurring interest - 504 504
Bank loan interest 69 119 187
-------- -------- ---------
Total interest payable 69 623 691
-------- -------- ---------
The unsecured loan notes were repaid following the Admission of the company's
shares to AIM on 16 December 2004.
6. Actual loss per share is calculated on the basis of the following
information:
Group Group Group
31 March 31 March Year ended
2006 2005 30 September
2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Earnings used in basic and diluted
earnings per share calculation
Loss for the financial period (77) (1,038) (601)
--------- --------- ---------
Earnings used in calculating
earnings per share adjusted for
goodwill amortisation, LTIP charges
and exceptional items
Loss for the financial period (77) (1,038) (601)
LTIP charges 204 102 310
Goodwill amortisation 778 577 1,255
Exceptional items - 1,016 1,076
--------- --------- ---------
905 657 2,040
--------- --------- ---------
Weighted average number of shares in
issue
Basic 41,017,902 44,229,846 42,406,166
Dilutive effect of share options 1,786,852 1,727,029 2,155,233
---------- ---------- ----------
Diluted 42,804,754 45,956,875 44,561,399
---------- ---------- ----------
The basic weighted average number of shares in issue in the six months to 31
March 2005 shown above is distorted by the share structure in place prior to the
Group's admission to AIM. The adjusted earnings per share figures quoted in the
Chairman's statement is therefore based on the number of shares in issue from
the float date of 16 December 2004 to 31 March 2005. As a result, basic number
of shares in issue used in the calculation for the six months to 31 March 2005
is 40,438,482 and the diluted number 42,165,511.
7. Analysis of debtors
31 March 2006 31 March 30 September
2005 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Trade debtors 5,268 3,279 3,152
Deferred taxation 400 - 400
Accrued income and prepayments 1,064 571 636
-------- -------- ---------
6,732 3,850 4,188
-------- -------- ---------
8. Analysis of creditors due within one year
31 March 31 March 30 September
2006 2005 2005
(unaudited) (unaudited) (audited)
Restated Restated
£000 £000 £000
Bank loans and overdraft 947 660 760
Hire purchase creditor 32 - -
Trade creditors 1,333 990 937
Corporation tax 397 115 455
Other taxes and social security 1,091 752 898
Other creditors 1,422 399 750
Accruals and deferred income 5,733 5,309 5,208
-------- -------- ---------
10,955 8,225 9,008
-------- -------- ---------
9. Analysis of creditors due after more than one year
31 March 31 March 30 September
2006 2005 2005
(unaudited) (unaudited) (audited)
£000 £000 £000
Bank loans 2,636 1,010 1,380
Hire purchase creditor 54 - -
Deferred income 684 - -
-------- -------- ---------
3,374 1,010 1,380
-------- -------- ---------
10. Profit & loss account reserve
31 March 31 March 30 September
2006 2005 2005
(unaudited) (unaudited) (audited)
Restated Restated
£000 £000 £000
At start of the period - as
previously reported (1,710) (428) (428)
Prior year adjustments (note 12) - 225 225
--------- --------- ---------
At start of the period - restated (1,710) (203) (203)
Total recognised gains & losses (77) (1,038) (1,337)
Dividends paid (575) - (445)
LTIP reserve transfer 180 101 275
--------- --------- ---------
(2,182) (1,140) (1,710)
--------- --------- ---------
11. Acquisition of subsidiary undertaking
On 22 February 2006 the Group acquired the entire issued share capital of
Sanderson Retail Systems Limited ('SRS'). Prior to the acquisition SRS traded as
Megabyte Limited. The consideration paid on acquisition was £1,495,000 of which
£1,000,000 was paid in cash and £495,000 in shares. A further £500,000 cash and
further ordinary shares in Sanderson Group plc may be payable dependent upon the
achievement of performance targets by SRS for a period ending not later than
30th September 2008.
The following table sets out the book values of the identifiable assets and
liabilities acquired, and their provisional fair values to the Group.
Book value Fair value Provisional
adjustments
fair value
£000 £000 £000
Tangible fixed assets 217 (66) 151
Stock 267 267
Debtors 1,245 1,245
Bank overdraft (332) (332)
Trade creditors (180) (180)
Other creditors (1,069) (1,069)
-------- -------- ---------
Net assets 148 (66) 82
-------- -------- ---------
Consideration and costs
Shares issued 495
Cash 1,000
Costs incurred 105
Contingent deferred share consideration 495
Contingent deferred cash consideration 500
---------
Consideration and costs 2,595
---------
Goodwill arising 2,513
---------
In addition, on 24 March 2006 the Group acquired the IPR in a software product
that complements the Group's existing product offerings. Consideration of
£200,000 cash was paid on acquisition, with a further £50,000 in cash being
payable in October 2006. The payments are being treated as an intangible asset
and amortised over a period of 3 years, which is considered to be the useful
life of the product acquired.
12. Prior year adjustment
The following UK accounting standards have been adopted for the first time in
preparing the interim results for the six months ended 31 March 2006:
FRS17 Retirement benefits
The Group previously reflected the transitional disclosure rules of the
standard, but has now adopted the recognition and measurement requirements for
the first time.
FRS21 Events after the balance sheet date
The standard requires dividends to be recognised when paid, or approved in
General Meeting. As a result, certain dividends previously accrued at period
ends have been recognised when paid or approved as applicable.
FRS25 Financial instruments: disclosure & presentation
Dividends, when recognised, are now reported as a movement in reserves rather
than on the face of the profit & loss account
FRS28 Corresponding amounts
No material changes have resulted from the adoption of this standard
Adoption has required a restatement of the comparative information, as
summarised below.
31 March 31 March 30 September
2006 2005 2005
(unaudited) (unaudited) (audited)
Restated Restated
£000 £000 £000
Balance sheet at period end
Reduction in provisions for
liabilities & charges - 1,208 1,173
Increase in net pension liability - (1,005) (1,736)
Reduction in creditors - proposed
dividends - 485 572
-------- -------- ---------
- 688 9
-------- -------- ---------
Profit & loss account for the period
Increase in taxation - - (6)
Increase in other finance costs - (23) (46)
-------- -------- ---------
Increase in loss for the period - (23) (52)
-------- -------- ---------
The adoption of FRS17 resulted in a lower net liability under FRS17 than
previously existed under SSAP24 at 30 September 2004. As a result the net assets
and profit and loss reserve have increased at this date by £225,000.
INDEPENDENT REVIEW REPORT TO SANDERSON GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 March 2006 which comprises the consolidated profit and
loss account, statement of recognised gains and losses, balance sheet, cash flow
statement and notes to the accounts. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the AIM
Rules which require that the interim report must be presented and prepared in a
form consistent with that which will be adopted in the company's annual accounts
having regard to the accounting standards applicable to such annual accounts.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the UK. A review consists
principally of making enquiries of management and applying analytical procedures
to the financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Statements on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2006.
KPMG Audit Plc
Chartered Accountants
Leeds
4 May 2006
This information is provided by RNS
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