8th Dec 2008 07:00
FOR IMMEDIATE RELEASE 8 DECEMBER 2008
SANDERSON GROUP PLC ('Sanderson' or 'the Group')
Preliminary Results for the year ended 30 September 2008
Sanderson Group plc, the software and IT services business specialising in the multi-channel retail and manufacturing markets in the UK and Ireland, announces Preliminary Results for the financial year ended 30 September 2008.
Highlights
Revenue up 52% to £27.55m (2007: £18.17m)
Adjusted* result from operating activities up 17% to £4.07m (2007: £3.47m)
Adjusted* basic earnings per share from continuing operations up 57% to 9.6p (2007: 6.1p)
Result from operating activities down 23% to £1.75m (2007: £2.26m)
Basic earnings per share from continuing operations up 31% to 4.2p (2007: 3.2p)
Proposed final dividend per share of 0.2p making total dividend for the year 1.4p (2007: 2.7p)
Cash generated from operations up 66% to £4.86m (2007: £2.92m)
Net debt reduced by £1.04m
* Before amortisation of acquisition related intangibles, impairment of goodwill and share based payment charges.
Commenting on the results, Chairman, Christopher Winn, said:
"These results reflect a full year contribution from the multi-channel retail businesses acquired in the previous financial year, together with a strong trading performance from the manufacturing business."
On current trading and prospects, Mr Winn, added:
"The Group has a resilient business model with approximately half of total revenue derived from pre-contracted licence and support fees. Sanderson is experiencing continued growth in sales of online trading solutions and the existing customer base should provide opportunities to significantly increase cross-selling of its products and services. Notwithstanding the current challenging economic climate and market conditions in the retail sector, trading in the current financial year is in line with management's expectations and five new customers have been acquired in the first quarter."
Contacts
Christopher Winn, Executive Chairman Telephone: 024 7655 5466
Adrian Frost, Finance Director Telephone: 024 7655 5466
David O'Byrne, Managing Director Telephone: 01709 787787
Paul Vann, Winningtons Financial Telephone: 020 3043 4162/Mobile: 077 6880 7631
Mark Taylor, Charles Stanley Telephone: 020 7149 6000
SANDERSON GROUP PLC
Preliminary Results for the year ended 30 September 2008
CHAIRMAN'S STATEMENT
Introduction
The results for the year to 30 September 2008 show that revenue has grown by 52% to £27.55m and that adjusted operating profit has grown by 17% to £4.07m. These results reflect a full year contribution from the multi-channel retail businesses acquired in the previous financial year, together with a strong trading performance from the manufacturing business.
The Group continues to see benefits from a business model that generates approximately 50% of revenue from annual software licences and support. Notwithstanding the resilience afforded by this level of recurring revenue, we continue to seek opportunities to deliver further improvements to the business model.
Cash generation has been a major focus of the Group during the year. Cash generated from operating activities represented 120% of adjusted operating profit. Furthermore, the operating structure of the Group has been reorganised to provide a more tax efficient arrangement, which will result in a considerable reduction in the rate of tax paid by the Group for at least the next three years. The new operating structure, together with the continued strong cash generation delivered by the business should enable the Group to considerably reduce its debt levels.
The Group's management structure now includes an operating board which is made up of the three executive directors and the managing directors of the multi-channel retail and manufacturing businesses (David Mahoney, Ian Newcombe and Steve Shakespeare, together with Steve Watson, one of the original founders of what is now Sanderson RBS Limited). The operating board will meet every month and will focus both on business development as well as maximising opportunities within the existing customer base and the wider multi-channel retail and manufacturing markets.
Financial results
Group revenue for the year increased by 52% to £27.55m from £18.17m last year. Adjusted operating profit rose by 17% to £4.07m from £3.47m achieved last year. The value of recurring revenues continued to grow, contributing £13.45m in 2008 (2007: £9.49m).
Profit before taxation has reduced in the year to £0.90m from £1.94m in 2007. This reduction is due to an increased amortisation charge in respect of acquisition related intangible assets and an increase in net finance expense as a result of the additional bank borrowings drawn to fund the previous year's acquisitions. The profit contribution during the year from the acquired businesses was earnings enhancing, more than covering the incremental finance expense arising from borrowings incurred to fund their acquisition.
The Group has reported a tax credit of £0.94m in 2008, compared to a tax charge of £0.59m in 2007. The tax credit has resulted from a detailed review of the Group's tax status and in particular unutilised tax losses brought forward from prior years. Changes to the treatment of financing inter-group loans and the ownership of Group Intellectual Property Rights have enabled tax losses to be utilised. Computations in respect of the 2006 and 2007 financial years have been resubmitted and the reduction in tax liabilities thereby arising is reflected in the credit to the profit and loss account reported in 2008. It is envisaged that remaining losses will continue to be utilised for at least another three years.
Net debt has been reduced to £10.66m (2007: £11.70m) with £500,000 of deferred consideration having been paid during the year. This reduction in debt has been possible as a result of a strong profit to cash conversion performance. Net debt at the year-end represents less than 2.4 times EBITDA. This has not, in the past, been an inappropriate ratio for a cash generative business, but the Board has set a target for net debt to represent around two times EBITDA at 30 September 2009.
Dividend
Since the Group acquired the multi-channel retail businesses in the previous financial year, there has been a well publicised change in the availability of debt for the financing of commercial transactions. In addition the market's attitude towards financial gearing has changed significantly, especially against the backdrop of the uncertainty in the general economy.
The Board has considered very carefully the need to deliver a progressive dividend whilst planning a reduction in debt levels. The Board has therefore decided to adopt a more prudent approach to financing and to rebase the dividend level in line with the current share price. Going forward cash resources will be focused on reducing the overall level of Group debt.
Subject to approval at the Annual General Meeting of Shareholders, expected to be held on 26 February 2009, a final dividend of 0.20 pence per ordinary share is proposed and will be paid on 27 March 2009 to shareholders on the register at the close of business on 6 March 2009.
The Group's trading performance in the first quarter of the new financial year is currently in line with both management's expectations and last year. Assuming no further deterioration in the general economy, the Board intends to adopt a progressive dividend policy, albeit starting from a lower base and would expect to deliver an increase on the 1.40 pence that will have been paid in respect of the financial year ended 30 September 2008.
Business Review
Sanderson provides a wide range of software solutions to the multi-channel retail and manufacturing sectors. These solutions consist mainly of the Group's own software together with leading third party products, which are installed and supported directly by Sanderson staff.
The Group has a proven business model which generates a significant proportion of revenue from annual software licences and support services. These recurring revenues amounted to £13.45m of revenue in the year to 30 September 2008, representing 49% of total revenue (2007: £9.49m, 52% of revenue). Continuing to build the value of recurring revenues remains a key Group objective.
New business has increased from 8% to 13% of total revenue with a number of significant new customers added during the year.
Review of multi-channel retail business
The Group generated 76% of its revenue from the multi-channel retail sector. New customers gained during the year included Fenwicks which, when combined with existing customers such as Harrods, firmly establishes Sanderson as the leading provider of point-of-sale solutions to UK department stores.
The Group provides a range of software-based solutions to key sectors of the retail market, including enterprise-wide systems for wholesalers and online trading businesses. This diversification should provide the Group with a level of protection from the economic uncertainty affecting UK high street retailers.
During the year we expanded both the range and the scope of our multi-channel retail product offerings, which now provide solutions across the multi-channel retail market. Our initial success in cross-selling these solutions within our customer base is an encouraging sign and the growth of this revenue stream is a key objective for the Group in the new financial year.
Review of manufacturing business
Our manufacturing business accounted for 24% of revenue in the year to 30 September 2008. Whilst revenue reduced by 3% to £6.49m, operating profit in this business increased by 29% to £1.26m as a result of improved margins both from delivering our own software and services, as well as prudent control of costs.
New customers gained during the year included Accuracy International and Valley Group, both of which were won in a competitive marketplace and provide evidence of the strength of our product offering. We also achieved further sales of our business intelligence and data collection solutions. These are examples of ways in which we are able to provide existing customers with tools to drive efficiency savings within their organisations by building on their existing IT investment.
Strategy
In these challenging times we are acutely aware of the risk associated with high levels of debt. Sanderson remains extremely cash generative and our short term strategy is to reduce debt levels as quickly as trading conditions will allow. In the medium term we believe that the Group is well positioned to benefit from its exposure to both the retail and manufacturing markets, as economic conditions improve and customers seek to use further investment in Sanderson solutions to drive continual business improvement.
Staff
Sanderson continues to employ staff with high levels of industry-specific knowledge, who are committed to delivering quality solutions to our customers. We would like to thank all our colleagues for their continued dedication in working with customers and partners.
Outlook
The Group has a resilient business model with approximately half of total revenue derived from pre-contracted licence and support fees. Sanderson is experiencing continued growth in sales of online trading solutions and the existing customer base should provide opportunities to significantly increase cross-selling of its products and services. Notwithstanding the current challenging economic climate and market conditions in the retail sector, trading in the current financial year is in line with management's expectations and five new customers have been acquired in the first quarter.
Consolidated income statement
for the year ended 30 September 2008
|
Note |
Before amortisation and impairment of intangible assets |
Amortisation and impairment of intangible assets |
Total 2008 |
Total 2007 |
||||||||||
|
£000 |
£000 |
£000 |
£000 |
|||||||||||
|
Revenue |
2 |
27,554 |
- |
27,554 |
18,165 |
|||||||||
|
Cost of sales |
(8,007) |
- |
(8,007) |
(3,448) |
||||||||||
|
Gross profit |
19,547 |
- |
19,547 |
14,717 |
||||||||||
|
Technical and development costs |
(9,441) |
- |
(9,441) |
(6,714) |
||||||||||
|
Administrative expenses |
(3,784) |
(2,270) |
(6,054) |
(4,212) |
||||||||||
|
Sales and marketing costs |
(2,300) |
- |
(2,300) |
(1,532) |
||||||||||
|
Results from operating activities |
4,022 |
(2,270) |
1,752 |
2,259 |
||||||||||
|
Results from operating activities before adjustments in respect of the following: |
4,070 |
- |
4,070 |
3,466 |
||||||||||
|
Amortisation of acquisition related intangibles |
- |
(1,381) |
(1,381) |
(621) |
||||||||||
|
Impairment of goodwill |
- |
(889) |
(889) |
- |
||||||||||
|
Share based payment charges |
(48) |
- |
(48) |
(586) |
||||||||||
|
Results from operating activities |
4,022 |
(2,270) |
1,752 |
2,259 |
||||||||||
|
Finance income |
564 |
- |
564 |
371 |
||||||||||
|
Finance expenses |
(1,415) |
- |
(1,415) |
(695) |
||||||||||
|
Profit before tax |
3,171 |
(2,270) |
901 |
1,935 |
||||||||||
|
Taxation |
3 |
942 |
- |
942 |
(589) |
|||||||||
|
Profit for the period from continuing operations |
4,113 |
(2,270) |
1,843 |
1,346 |
||||||||||
|
Discontinued operations |
||||||||||||||
|
Loss for the period from discontinued operations |
- |
- |
- |
(385) |
||||||||||
|
Profit for the year attributable to equity holders of the parent |
4,113 |
(2,270) |
1,843 |
961 |
||||||||||
|
Earnings per share From continuing operations |
||||||||||||||
|
Basic earnings per share |
4 |
4.2p |
3.2p |
|||||||||||
|
Diluted earnings per share |
4 |
4.1p |
3.0p |
|||||||||||
|
From continuing and discontinued operations |
||||||||||||||
|
Basic earnings per share |
4 |
4.2p |
2.3p |
|||||||||||
|
Diluted earnings per share |
4 |
4.1p |
2.1p |
|||||||||||
Consolidated balance sheet
at 30 September 2008
|
2008 |
2007 |
||||
|
£000 |
£000 |
||||
|
Non-current assets |
|||||
|
Property, plant and equipment |
602 |
589 |
|||
|
Intangible assets |
37,236 |
40,834 |
|||
|
Pension and other employee obligations |
170 |
9 |
|||
|
Deferred tax assets |
1,046 |
805 |
|||
|
39,054 |
42,237 |
||||
|
Current assets |
|||||
|
Inventories |
397 |
392 |
|||
|
Trade and other receivables |
6,920 |
8,180 |
|||
|
Income tax receivable Derivative financial instrument |
791 72 |
- - |
|||
|
Cash and cash equivalents |
1,060 |
935 |
|||
|
9,240 |
9,507 |
||||
|
Current liabilities |
|||||
|
Bank loans and borrowings |
(2,170) |
(2,023) |
|||
|
Trade and other payables |
(4,565) |
(5,779) |
|||
|
Income tax payable |
- |
(622) |
|||
|
Deferred contingent consideration |
- |
(1,888) |
|||
|
Deferred income |
(6,500) |
(6,153) |
|||
|
(13,235) |
(16,465) |
||||
|
Net current liabilities |
(3,995) |
(6,958) |
|||
|
Total assets less current liabilities |
35,059 |
35,279 |
|||
|
Non-current liabilities |
|||||
|
Loans and borrowings |
(9,554) |
(10,616) |
|||
|
Deferred income |
(702) |
- |
|||
|
Deferred tax liabilities |
(1,665) |
(2,121) |
|||
|
(11,921) |
(12,737) |
||||
|
Net assets |
23,138 |
22,542 |
|
Equity attributable to equity holders of the Company |
|||||
|
Share capital |
4,338 |
4,228 |
|||
|
Share premium |
15,178 |
14,758 |
|||
|
Shares to be issued |
- |
495 |
|||
|
Retained earnings |
3,622 |
3,061 |
|||
|
Total equity |
23,138 |
22,542 |
Consolidated cash flow statement
for the year ended 30 September 2008
|
Note |
2008 |
2007 |
|
|
£000 |
£000 |
||
|
Cash flows from operating activities |
|||
|
Profit for the period |
1,843 |
961 |
|
|
Adjustments for: |
|||
|
Amortisation and impairment of intangible assets |
2,425 |
736 |
|
|
Depreciation |
267 |
242 |
|
|
Share based payment expense |
48 |
586 |
|
|
Net finance expense |
851 |
324 |
|
|
Income tax |
(942) |
424 |
|
|
Operating cash flow before changes in working capital and provisions |
4,492 |
3,273 |
|
|
Movement in trade and other receivables |
1,287 |
(1,536) |
|
|
Movement in inventories |
(5) |
(1) |
|
|
Movement in trade and other payables |
(685) |
1,318 |
|
|
Payments to employee benefit plan |
(234) |
(134) |
|
|
Cash generated from operations |
4,855 |
2,920 |
|
|
Interest paid |
(605) |
(260) |
|
|
Income tax paid |
(1,139) |
(360) |
|
|
Net cash from operating activities |
3,111 |
2,300 |
|
|
Cash flow from investing activities |
|||
|
Purchase of plant and equipment |
(247) |
(100) |
|
|
Development expenditure capitalised |
(50) |
(69) |
|
|
Purchase of intellectual property |
- |
(50) |
|
|
Purchase of trade and assets |
- |
(1,142) |
|
|
Acquisition of subsidiary, net of cash balances acquired |
(500) |
(9,048) |
|
|
Net cash flow from investing activities |
(797) |
(10,409) |
|
|
Cash flow from financing activities |
|||
|
Proceeds from bank borrowing, net of arrangement costs |
- |
10,219 |
|
|
Repayment of bank borrowing |
(975) |
(500) |
|
|
Repayment of finance lease principal |
(22) |
(28) |
|
|
Equity dividends paid |
5 |
(1,192) |
(1,110) |
|
Net cash flow from financing activities |
(2,189) |
8,581 |
|
|
Net increase in cash and cash equivalents |
125 |
472 |
|
|
Cash and cash equivalents at beginning of year |
935 |
463 |
|
|
Cash and cash equivalents at the end of the year |
1,060 |
935 |
Notes
1 Financial statements
This preliminary statement, which has been agreed with the auditors, was approved by the Board on 8 December 2008. It is not the Company's statutory accounts. Statutory accounts will be sent to shareholders shortly.
The statutory accounts for the two years ended 30 September 2007 and 2006 received audit reports which were unqualified and did not contain statements under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 30 September 2007 have been delivered to the Registrar of Companies but the 30 September 2008 accounts have not yet been filed.
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.
|
Manufacturing |
Multi-channel |
Total |
|||||
|
2008 £000 |
2007 £000 |
2008 £000 |
2007 £000 |
2008 £000 |
2007 £000 |
||
|
Revenue |
6,489 |
6,673 |
21,065 |
11,492 |
27,554 |
18,165 |
|
|
Operating profit before amortisation, impairment and share based payment charges |
1,255 |
976 |
2,815 |
2,490 |
4,070 |
3,466 |
|
|
Amortisation of acquisition related intangibles |
- |
- |
(1,381) |
(621) |
(1,381) |
(621) |
|
|
Impairment of goodwill |
- |
- |
(889) |
- |
(889) |
- |
|
|
Share based payment charges |
(48) |
(586) |
|||||
|
Operating profit |
1,752 |
2,259 |
|||||
|
Net finance expense |
(851) |
(324) |
|||||
|
Profit before taxation |
901 |
1,935 |
|||||
|
Property, plant and equipment |
256 |
280 |
346 |
309 |
602 |
589 |
|
|
Intangible assets |
12,550 |
12,550 |
24,686 |
28,284 |
37,236 |
40,834 |
|
|
Inventory |
48 |
68 |
349 |
324 |
397 |
392 |
|
|
Trade and other receivables |
1,354 |
1,733 |
5,566 |
6,447 |
6,920 |
8,180 |
|
|
14,208 |
14,631 |
30,947 |
35,364 |
45,155 |
49,995 |
||
|
Other unallocated assets and liabilities |
(22,017) |
(27,453) |
|||||
|
Net assets |
23,138 |
22,542 |
|||||
A number of manufacturing and multi-channel operations are undertaken through one legal entity with certain functions such as cash management and procurement being managed centrally. As a result it is not possible to report cash, borrowings and trade payables by segment.
3 Taxation
|
Continuing operations |
Discontinued operations |
Total |
|||||
|
2008 £000 |
2007 £000 |
2008 £000 |
2007 £000 |
2008 £000 |
2007 £000 |
||
|
Current tax expense |
|||||||
|
UK corporation tax for the current year |
299 |
841 |
- |
(165) |
299 |
676 |
|
|
Relating to prior periods |
(573) |
25 |
- |
- |
(573) |
25 |
|
|
Total current tax |
(274) |
866 |
- |
(165) |
(274) |
701 |
|
|
Deferred tax |
|||||||
|
Deferred tax for the current year |
(480) |
(277) |
- |
- |
(480) |
(277) |
|
|
Relating to prior periods |
(100) |
- |
- |
- |
(100) |
- |
|
|
Relating to change in rate of tax |
(88) |
- |
- |
- |
(88) |
- |
|
|
Total deferred tax |
(668) |
(277) |
- |
- |
(668) |
(277) |
|
|
Taxation (credited)/charged to the income statement |
(942) |
589 |
- |
(165) |
(942) |
424 |
|
Reconciliation of effective tax rate
The current consolidated tax charge for the period is lower (2007: higher) than the standard rate of corporation tax in the UK of 29%. The differences are explained below.
|
|
|
2008
|
2007
|
|
|
|
£000
|
£000
|
|
Profit before tax:
|
|
|
|
|
Continuing operations
|
901
|
1,935
|
|
|
Discontinued operations
|
-
|
(550)
|
|
|
|
|
901
|
1,385
|
|
|
|
|
|
|
Tax using the UK Corporation tax rate of 29% (2007: 30%)
|
261
|
416
|
|
|
|
|
|
|
|
Effects of:
|
|
|
|
|
Expenses not deductible for tax purposes
|
312
|
97
|
|
|
Expenses not reported in income statement
|
231
|
-
|
|
|
Utilisation of losses not previously recognised
|
(428)
|
-
|
|
|
Recognition of loss utilisation anticipated in future periods
|
(633)
|
-
|
|
|
(Over) / under provision in previous years
|
(673)
|
25
|
|
|
Losses not utilised in year
|
5
|
(114)
|
|
|
Change in temporary differences
|
(17)
|
-
|
|
|
|
Total tax in income statement
|
(942)
|
424
|
The overprovision for income tax in previous years has arisen as a result of the utilisation of brought forward tax losses not previously recognised as an asset due to uncertainties over their availability.
The following deferred tax asset has not been recognised, as its future economic benefit is uncertain:
|
2008 |
2007 |
||
|
£000 |
£000 |
||
|
Tax losses, not recognised as future economic benefit is uncertain |
2,372 |
3,323 |
4 Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit 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. The basic and diluted earnings per share is also stated for earnings attributable to continuing and discontinued operations. 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.
From continuing and discontinued operations
The calculation of the basic and diluted earnings per share is based on the following data:
|
Earnings: |
2008 |
2007 |
|
£000 |
£000 |
|
|
Profit for the year |
1,843 |
961 |
|
Result attributable to discontinued operations |
- |
385 |
|
Profit for the year from continuing operations |
1,843 |
1,346 |
|
Amortisation of acquisition related intangible assets |
1,381 |
621 |
|
Impairment charge |
889 |
- |
|
Share based payment charges |
48 |
586 |
|
Adjusted profit from continuing operations for the year |
4,161 |
2,553 |
|
Number of shares: |
2008 |
2007 |
|
No. |
No. |
|
|
In issue at the start of the year |
42,281,744 |
41,813,482 |
|
Effect of shares issued in the year |
1,102,202 |
20,583 |
|
Weighted average number of shares at year end |
43,383,946 |
41,834,065 |
|
Effect of share options |
1,836,427 |
1,946,775 |
|
Effect of deferred consideration shares |
- |
1,000,000 |
|
Weighted average number of shares (diluted) at year end |
45,220,373 |
44,780,840 |
|
2008 (pence) |
2007 (pence) |
|
|
Earnings per share: |
||
|
Basic |
4.2 |
2.3 |
|
Diluted |
4.1 |
2.1 |
|
Earnings per share attributable to continuing operations: |
||
|
Basic |
4.2 |
3.2 |
|
Diluted |
4.1 |
3.0 |
|
Adjusted earnings per share attributable to continuing operations: |
||
|
Basic |
9.6 |
6.1 |
|
Diluted |
9.2 |
5.7 |
|
Earnings per share attributable to discontinued operations: |
||
|
Basic |
- |
(0.9) |
|
Diluted |
- |
(0.9) |
5 Dividends
|
2008 £000 |
2007 £000 |
||
|
Interim dividend of 1.20p per share (2007: 1.15p) |
521 |
483 |
|
|
Final dividend relating to previous financial year of 1.55p per share (2007: 1.50p) |
671 |
627 |
|
|
Total dividend paid in the financial year |
1,192 |
1,110 |
Related Shares:
SND.L