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Half-year results - 6 months to 31 March 2014

29th May 2014 07:00

RNS Number : 2857I

Electronic Data Processing PLC

29 May 2014

Electronic Data Processing PLC (EDP)

Half-year results - 6 months to 31 March 2014

EDP is an IT solution provider to the UK wholesale distribution industry and a supplier of Sales Intelligence software solutions more widely. Financial Highlights

· Turnover £2.62 million (2013: £2.93 million)

· Turnover impacted by delays to a number of discrete customer orders during the last two months of the period. However, sales in April and May have returned to more normal levels consistent with those experienced in the second half of last year

· Adjusted operating profit £202,000 (2013: £431,000)

· Hosting revenues strengthened further and represent 49% of total revenues (2013: 44%)

· Contracted recurring revenues maintained at £2.2 million representing 84% of total revenues

· Continued R&D investment of £460,000 in first half (2013: £469,000)

· Strong, debt-free balance sheet with cash balances of £5.5 million

· Special interim dividend of 3p per share returns £378,000 to shareholders

· The Board expects to declare a final ordinary dividend of 2p per share for the current financial year (2013: final ordinary of 2p)

· Dividend policy in future years reviewed to raise the level of ordinary dividends to 5p in total, 2p at the interim and 3p at the final

Sir Michael Heller, Chairman of EDP, said:

"We continue to follow a policy of maintaining a strong balance sheet to protect the business and to provide flexibility of funding for our growth including acquisitions should suitable opportunities arise.

In view of our continuing, relatively large cash balance, we have as a Board reviewed our dividend policy and have decided, in principle, to raise the level of ordinary dividends going forward, subject still to acquisition opportunities that may arise and our overall cash position at the time.

On this basis, we have decided to pay a special interim dividend of 3p per share. Our expectation is to declare a final ordinary dividend of 2p per share for the current financial year.

It is our current intention, in future years, to reverse the balance and pay an interim dividend of 2p per share and a final dividend of 3p per share.

We look forward to the future with confidence."

-Ends-

For further information please contact:

Julian Wassell

James Storey

Toby Mountford

Chief Executive

Finance Director

Citigate Dewe Rogerson

0114 262 2010

020 7638 9571

07710 356611

www.edp.co.uk

Chairman's Statement

Turnover for the six months to 31 March 2014 was £2.62 million compared with £2.93 million in the corresponding period last year.

Our turnover has been impacted by delays to a number of discrete customer orders during the last two months of the period. However, sales in April and May have returned to more normal levels, consistent with those experienced in the second half of last year. Contracted recurring revenues, which relate to annual software licences and hosting fees, were similar to last year at £2.2 million.

Adjusted operating profit, before non-cash IFRS charges, was £202,000 compared to £431,000. Statutory pre-tax profit for the 6 months was £162,000 (2013: £424,000). Interest income was £26,000 (2013: £50,000) due to lower interest rates on our cash balances. Net non-cash IFRS charges were £66,000 (2013: £57,000).

We have learned that one of our larger customers has recently acquired a competitor software business. Accordingly, we expect to lose this business in due course, although we do not expect this to impact on the current year.

Our strategy to increase the proportion of our business delivered through our hosting centre in Milton Keynes has continued to deliver results. Hosting revenues now represent 49% of turnover (2013: 44%) as our customers continue to recognise the benefits of having their software delivered through the cloud.

We continue to make significant investment in the future of our main software products. R&D expenditure during the period was £460,000, representing 17.5% of revenue (2013: £469,000).

Group net assets were £6.14 million at 31 March 2014 compared with £6.15 million at 30 September 2013. Cash balances were £5.5 million (2013: £5.9 million).

We continue to follow a policy of maintaining a strong balance sheet to protect the business and to provide flexibility of funding for our growth including acquisitions should suitable opportunities arise.

Last year we paid a special interim dividend of 5p as opposed to the previous ordinary 0.713p.

On this basis, we have decided to pay a special interim dividend of 3p per share. This dividend will return £378,000 to shareholders and will be paid on 1 August 2014 to those shareholders on the register on 4 July 2014. The shares will be ex-dividend on 2 July 2014. Our expectation is to declare a final ordinary dividend of 2p per share for the current financial year.

It is our current intention, in future years, to reverse the balance and pay an interim dividend of 2p per share and a final dividend of 3p per share.

I would like to thank our staff for their hard work and look forward to the future with confidence.

Sir Michael Heller 28 May 2014

Chairman

Principal Risks and Uncertainties

We operate in a changing economic and technological environment that presents risks, many of which are driven by factors that we cannot control or predict. The key risks and uncertainties facing EDP and the measures taken to mitigate these risks are as follows:

Systems and networks

EDP's business operations rely significantly on the efficient and uninterrupted operation of its information technology systems and networks. Any damage or interruption, however caused, could have a material adverse effect on the delivery of our products and services.

EDP's computer network may be vulnerable to unauthorised access, viruses and other disruptive problems. A party that is able to override security measures could misappropriate proprietary information or cause disruption to our operations.

We continually review and test the security of internal systems and networks and have developed recovery plans in the event of systems disruption. Where reliance is placed upon externally provided systems and networks we undertake regular performance ability reviews and ensure that contracts provide for an appropriate level of service maintenance.

Technological advances

The markets in which EDP operates are characterised by evolving technology, market practices and industry standards. Competitors could develop superior products or more cost-effective techniques which could render our products uncompetitive or less acceptable to the market. We have an ongoing commitment to research and development which allows us to identify and adapt to any technological and market changes that do occur thereby ensuring that our products continue to meet the demands of our customers.

External economic factors

As with most other businesses in the UK, our operations can be adversely affected by a significant downturn in the economy. Restricted availability of finance for businesses and a stagnant or recessionary economy could have an adverse effect on the prospects for EDP, as potential customers, particularly in the builders and timber merchants sectors, may scale back their IT plans in response to funding difficulties and/or reduced prospects for their businesses.

We seek to mitigate these risks by ensuring that a significant proportion of our revenues are derived from long-term contracts with our customers, by ensuring that our products appeal to businesses operating in a range of business sectors and by generally seeking payment for our recurring fees annually in advance.

Competitor activity

EDP operates in a competitive environment. New entrants to our marketplace and actions taken by existing competitors could have an impact on our levels of business activity and product pricing in the market generally. We endeavour to provide excellent customer support together with high quality products at a competitive price in order to develop and protect strong customer relationships.

Key personnel

In common with all people-based businesses, our success will, to a significant extent, be dependent on the experience of the Board and senior management, the loss of one or more of whom could have a material adverse effect on EDP. The retention of the services of EDP's key employees cannot be guaranteed. Accordingly we are continually focused on the need to recruit, retain, reward and motivate staff with the appropriate skills.

Responsibility Statement of the Directors in Respect of the Half-Yearly Financial Report

We confirm that, to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union;

• the half-yearly management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

J M Storey

Secretary

28 May 2014

The Directors who served throughout the period are:

Sir Michael Heller	Chairman (Non-Executive)
J.H. Wassell	Chief Executive
P.A. Davey	Sales Director
P.J. Davies	Application Software Products Director
A.R. Heller	Non-Executive Director
C.R. Spicer	Network Services Director
J.M. Storey	Finance Director

Condensed Consolidated Income Statement
For the six months ended 31 March 2014



	Unaudited	Unaudited
	six months	six months	Audited full year
	to	to	to
	31 March 2014	31 March 2013	30 September 2013
	£'000	£'000	£'000

Revenue	2,622	2,931	5,827



Gross profit	2,455	2,724	5,419

Administrative expenses	(2,319)	(2,350)	(4,710)

Operating profit	136	374	709

Finance income	26	50	85

Profit before tax	162	424	794

Income tax expense	(1)	(98)	(207)

Profit for the period attributable
to equity holders of the parent	161	326	587

Earnings per share
- Basic	1.28p	2.60p	4.68p

- Diluted	1.26p	2.58p	4.63p

Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 March 2014
	Unaudited	Unaudited
	six months	six months	Audited full year
	to	to	to
	31 March 2014	31 March 2013	30 September 2013
	£'000	£'000	£'000

Profit for the period	161	326	587

Other comprehensive income:
Items that will not be reclassified to profit or loss:
Actuarial gains/(losses) on defined benefit pension scheme	37	(134)	169
Income tax on other comprehensive income	(7)	31	(32)

Other comprehensive income for the period, net of tax	30	(103)	137

Total comprehensive income for the period attributable
to equity holders of the parent	191	223	724

Condensed Consolidated Balance Sheet
at 31 March 2014

	Unaudited at	Unaudited at	Audited at
	31 March 2014	31 March 2013	30 September 2013
	£'000	£'000	£'000
Non-current assets
Property, plant and equipment	1,718	1,773	1,743
Deferred tax asset	212	322	209
Intangible assets	344	336	322
	2,274	2,431	2,274
Current assets
Inventories	70	91	81
Trade and other receivables	1,441	1,540	1,537
Cash and cash equivalents	5,497	5,905	5,667
Assets held for sale	1,423	1,423	1,423
	8,431	8,959	8,708

Total assets	10,705	11,390	10,982


Current liabilities
Deferred income	(1,986)	(1,983)	(2,291)
Income tax payable	(209)	(283)	(177)
Trade and other payables	(1,214)	(1,393)	(1,195)
	(3,409)	(3,659)	(3,663)

Non-current liabilities
Deferred income	(34)	(86)	(57)
Employee benefits	(1,058)	(1,299)	(1,044)
Deferred tax liability	(69)	(92)	(70)
	(1,161)	(1,477)	(1,171)

Total liabilities	(4,570)	(5,136)	(4,834)


Net assets	6,135	6,254	6,148

Equity
Share capital	689	689	689
Share premium	119	119	119
Capital redemption reserve	625	625	625
Treasury shares	(587)	(627)	(627)
Retained earnings	5,289	5,448	5,342
Total equity attributable to equity holders
of the parent	6,135	6,254	6,148

Condensed Consolidated Cash Flow Statement
for the six months ended 31 March 2014

	Unaudited	Unaudited
	six months	Six months	Audited full year
	to	to	to
	31 March 2014	31 March 2013	30 September 2013
	£'000	£'000	£'000

Cash flows from operating activities
Profit for the period	161	326	587
Adjustments for:
Depreciation	102	94	193
Amortisation	85	79	158
Net (profit)/loss on disposal of property, plant and equipment	(1)	2	2
Transfer of inventory (to)/from property, plant and equipment	(11)	6	5
Defined benefit pension charge net of employer contributions	51	45	93
Finance income	(26)	(50)	(85)
Income tax expense	1	98	207
Change in inventories	11	(12)	(2)
Change in receivables	95	11	1
Change in payables	(233)	(169)	(116)
Change in deferred income	(328)	(441)	(162)
Equity settled share-based payment transactions	1	4	9

Cash (used in)/received from operations	(92)	(7)	890
Interest received	27	50	98
Income taxes received/(paid)	30	-	(173)
Net cash from operating activities	(35)	43	815

Cash flows from investing activities
Purchase of property, plant and equipment	(72)	(167)	(235)
Purchase of intangible assets	(57)	-	(6)
Development expenditure	(50)	(59)	(118)
Net proceeds from sale of property, plant and equipment	7	440	440
Net cash (used in)/generated by investing activities	(172)	214	81

Cash flows from financing activities
Issue of shares out of treasury	37	-	-
Dividends paid	-	-	(877)
Net cash generated by/(used in) financing activities	37	-	(877)


Net (decrease)/increase in cash and cash equivalents	(170)	257	19
Cash and cash equivalents at beginning of period	5,667	5,648	5,648
Cash and cash equivalents at end of period	5,497	5,905	5,667

Condensed Consolidated Statement of Changes in Equity
for the six months ended 31 March 2014

			Capital
	Share	Share	redemption	Treasury	Retained
	capital	premium	reserve	shares	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000

At 1 October 2013 (audited)	689	119	625	(627)	5,342	6,148

Profit for the period	-	-	-	-	161	161
Other comprehensive income:
- actuarial gain on defined benefit pension scheme
net of tax	-	-	-	-	30	30
Total comprehensive income	-	-	-	-	191	191

Transactions with owners:
- issue of shares out of treasury	-	-	-	40	(3)	37
- share-based payment transactions	-	-	-	-	11	11
- dividends approved	-	-	-	-	(252)	(252)
Total transactions with owners	-	-	-	40	(244)	(204)


At 31 March 2014 (unaudited)	689	119	625	(587)	5,289	6,135


			Capital
	Share	Share	redemption	Treasury	Retained
	capital	premium	reserve	shares	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000

At 1 October 2012 (audited)	689	119	625	(627)	5,464	6,270

Profit for the period	-	-	-	-	326	326
Other comprehensive income:
- actuarial loss on defined benefit pension scheme
net of tax	-	-	-	-	(103)	(103)
Total comprehensive income	-	-	-	-	223	223

Transactions with owners:
- share-based payment transactions	-	-	-	-	12	12
- dividends approved	-	-	-	-	(251)	(251)
Total transactions with owners	-	-	-	-	(239)	(239)


At 31 March 2013 (unaudited)	689	119	625	(627)	5,448	6,254

Notes

1	Interim financial information
	Electronic Data Processing PLC is a public limited company listed on the London Stock Exchange and incorporated and domiciled in England.

	The condensed consolidated interim financial information was approved for issue on 28 May 2014.

	The condensed financial information is not the Company's statutory accounts. The interim financial information for the six month periods ended 31 March 2013 and 31 March 2014 has not been audited. The comparative figures for the financial year ended 30 September 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

2	Basis of preparation
	The unaudited condensed consolidated interim financial information for the six months ended 31 March 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the EU. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 30 September 2013, which have been prepared in accordance with IFRSs as adopted by the EU.

3	Accounting policies
	The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2013, as described in those financial statements.

	The following new standards or amendments to existing standards became effective during the period to 31 March 2014 but had no material impact on this consolidated financial information:

	- IFRS 1 (amended) 'First Time Adoption of International Financial Reporting Standards';
	- IFRS 7 (amended) 'Financial Instruments: Disclosures';
	- IFRS 10 'Consolidated Financial Statements';
	- IFRS 11 'Joint Arrangements';
	- IFRS 12 'Disclosure of Interests in Other Entities';
	- IFRS 13 'Fair Value Measurement';
	- IAS 19 (amended) 'Employee Benefits';
	- IAS 27 'Separate Financial Statements';
	- IAS 28 'Investments in Associates and Joint Ventures'; and
	- amendments to various standards resulting from Annual Improvements 2009-2011 Cycle.

	The following new standards, interpretations and amendments to existing standards are not yet effective and have not been early adopted by the Group:

	- IFRS 9 'Financial Instruments';
	- IFRS 11 (amended) 'Joint Arrangements';
	- IFRS 14 'Regulatory Deferral Accounts';
	- IAS 16 (amended) 'Property, Plant and Equipment';
	- IAS 27 (amended) 'Separate Financial Statements';
	- IAS 32 (amended) 'Financial Instruments: Presentation';
	- IAS 36 (amended) 'Impairment of Assets';
	- IAS 38 (amended) 'Intangible Assets';
	- IAS 39 (amended) 'Financial Instruments: Recognition and Measurement';
	- IFRIC 21 'Levies';
	- amendments to various standards resulting from Annual Improvements 2010-2012 Cycle; and
	- amendments to various standards resulting from Annual Improvements 2011-2013 Cycle.

4	Significant judgements, assumptions and risks
	In preparing these interim results the main areas of significant judgements and estimates made by management in applying the Group's accounting policies are the same as those that applied to the accounts for the year ended 30 September 2013, namely:
	- employee benefits;
	- software intellectual property rights;
	- freehold property valuation and classification;
	- development costs; and
	- revenue recognition.

	These estimates and associated assumptions are based on historical experience and other reasonable factors which form the basis of determining the reported values of assets and liabilities.
	During the period the Directors updated the assumptions underlying the valuation of the defined benefit pension scheme under IAS19. As a result the assumptions relating to future inflation and mortality rates were subject to minor changes. The changes did not have a material impact on the valuation of the pension scheme liability at 31 March 2014.
	In the six months to 31 March 2014 there have been no other changes to the estimates applied to the areas identified above that have materially affected the half yearly financial information.

5	Segment information
	The Group has identified its reportable segment based on the financial reports that internally are provided to the Group's Chief Operating Decision Maker ('CODM'). In line with its management structure, the Executive Directors collectively make the key operating decisions and review internal monthly management accounts and budgets as part of this process. Accordingly, the Executive Directors collectively are considered to be the CODM. The information reported regularly to the CODM presents the Group as a single segment supplying software and related services to customers operating in similar markets. The Group's software products share a common sales, development and implementation resource. Consequently the Group has determined that there is one operating segment and therefore one reportable segment, Software.

	Segment performance is measured based on segment profit before tax excluding IAS 19 defined benefit pension scheme adjustments and profits or losses on property disposals or revaluations.

		Unaudited six months to 31 March 2014	Unaudited six months to 31 March 2013
		Software	Software
		£'000	£'000

	Revenue - external customers	2,622	2,931

	Profit
	Adjusted operating profit	202	431
	Segment non-cash net IFRS charges	(15)	(12)
	Interest revenue	26	50

	Segment profit before tax	213	469
	Defined benefit pension scheme charge net of employer contributions	(51)	(45)

	Consolidated profit before tax	162	424


6	Adjusted operating profit



		Unaudited	Unaudited
		six months	six months
		to	to
		31 March 2014	31 March 2013
		£'000	£'000

	Operating profit	136	374
	Adjustments for non-cash items:
	Amortisation of intangible assets under IFRS	81	75
	Capitalised development costs	(50)	(59)
	Defined benefit pension scheme charge under IFRS	51	45
	Other credits under IFRS	(16)	(4)

	Adjusted operating profit	202	431

Taxation

The current period taxation charge is derived from the Directors' best estimate of the annual tax rate applied to the result for the period.

The Group's effective tax rate for the six months to 31 March 2014 was 0% (2013: 23%). The change in effective tax rate was caused mainly by a refund received in the current period relating to research and development relief from a prior period.

An analysis of the Group income tax expense is shown below:

Unaudited

six months

31 March 2014

31 March 2013

£'000

United Kingdom corporation tax - current period

United Kingdom corporation tax - adjustments relating to prior years

(30)

Deferred tax - current period

(1)

Income tax expense

Earnings per share

Basic earnings per share is calculated by dividing the profit after tax of £161,000 (2013: £326,000) by 12,567,899 (2013: 12,530,976) being the weighted average number of shares in issue during the period. Basic earnings per share is 1.28p (2013: 2.60p).

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Company has one class of dilutive potential ordinary share, share options granted to employees under its Enterprise Management Incentive Share Option Plan. These shares have been included in the diluted earnings per share calculation.

Diluted earnings per share is calculated by dividing the profit after tax of £161,000 (2013: £326,000) by 12,755,782 (2013: 12,620,066) being the weighted average number of shares in issue adjusted for the effects of all dilutive potential ordinary shares. Diluted earnings per share is 1.26p (2013: 2.58p).

Dividends

The 2013 final dividend of 2.0p per share was approved by shareholders during the period to 31 March 2014 and a liability of £252,000 has been recognised in this half-yearly report.

The Directors announce a special interim dividend of 3.0p per share (2013: special interim dividend of 5.0p per share) payable on 1 August 2014 to shareholders who are on the register at 4 July 2014. This special interim dividend, amounting to £378,000, (2013: special interim dividend £627,000) has not been recognised as a liability in this half-yearly report.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR SEEFMAFLSEDI

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