Half-year results - 6 months to 31 March 2015

26 May 2015

Electronic Data Processing PLC (EDP)

Half-year results - 6 months to 31 March 2015

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 £2.52 million (2014: £2.62 million)

• Adjusted operating profit maintained at £202,000 (2014: £202,000)

• Hosting revenues represent 50% of total revenues (2014: 49%)

• Contracted recurring revenues represent 80% of total revenues (2014: 85%)

• R&D investment increased to £540,000 in first half (2014: £460,000)

• Strong, debt-free balance sheet with total cash balances and short-term investments of £5.2 million

• Interim dividend of 2p per share returns £252,000 to shareholders

• Expected final dividend of 3p per share making 5p for the full year, which would represent a 7.2% yield based on the share price at the date of the interim report

Sir Michael Heller, Chairman of EDP, said:

"Whilst we expect trading conditions to remain competitive, with our continued investment in our key products and robust business model, we remain confident about the outlook for the remainder of the year."

-Ends-

For further information please contact:

www.edp.co.uk

Chairman's Statement

Turnover for the six months to 31 March 2015 was £2.52 million compared with £2.62 million in the corresponding period last year. Adjusted operating profit was maintained at £202,000 (2014: £202,000).

As previously reported, our turnover during the period has been impacted due to one of our customers acquiring a competitor software business and subsequently moving to that business's product. The effect of this on turnover during the period was approximately £150,000. Excluding the effect of this, total revenue from other sources was £50,000 higher than last year. We have simultaneously embarked on a cost reduction programme which will yield £200,000 of savings annually; £100,000 of these savings were recognised during the first half. The savings relate to property and personnel costs and a one-off charge of £56,000 in respect of the latter has been reflected in the current period's results. As a result of these savings our level of "adjusted" operating profit has been maintained notwithstanding the reduction in turnover.

Statutory pre-tax profit for the 6 months was £179,000 (2014: £162,000). Interest income was £20,000 (2014: £26,000). A reconciliation of pre-tax profit to adjusted operating profit is shown in note 6.

Trading conditions remain competitive as described in our full year results to 30 September 2014. Our strategy of increasing the number of customers who receive their software through our hosting service means that we continue to see a gradual shift away from upfront revenue towards stronger ongoing subscription revenues; this trend is particularly apparent with our Vecta product.

Contracted recurring revenues, which relate to annual software licences and hosting fees, were 80% of total revenues (2014: 85%). Hosting revenues represented 50% of total revenue during the period (2014: 49%).

Expenditure on product R&D during the period amounted to £540,000 (2014: £460,000) as we continue to enhance the functionality of our key software products: Quantum VS and Vecta. The second half of the financial year will see the release of our new Quantum e-business module and a major new release of our Vecta CRM and business intelligence product.

It is particularly pleasing that Vecta won the "Software as a Service" category at the industry renowned European IT and Software Excellence Awards for 2015, making us an award winner at this event for the second year running.

We have recently accepted an offer for our surplus freehold warehouse property in Sheffield. The sale is progressing and accordingly the property has been transferred to current assets and disclosed as an asset held for sale in the Balance Sheet at 31 March 2015. We will update shareholders with any further progress in due course.

Group net assets were £4.66 million at 31 March 2015 compared with £5.34 million at 30 September 2014. This reflects an increase of £594,000 (net of deferred tax) in the liability associated with the Group's defined benefit pension scheme. The IAS19 liability net of deferred tax amounts to £2.17 million. This is largely due to a further reduction in the interest rate used to discount the value of the scheme's liabilities under IAS 19. It is important to note that the last full actuarial valuation of the scheme at 31 July 2013 showed a small surplus. As noted in our accounts for the year to 30 September 2014, this difference arises principally because the IAS19 valuation does not take into account the guaranteed annuity rates which have been secured and which are included within the ongoing funding valuation. Furthermore the scheme is closed to further service accrual and we are not currently required to make any ongoing contributions to the scheme. Further details are provided in note 4 to this interim statement.

Cash and short-term investments (which represent fixed term deposits with maturity in excess of three months) amount to £5.22 million (2014: £5.50 million). Our policy is to use these cash balances for focussed acquisitions should suitable opportunities arise.

Your Directors have resolved to pay an interim dividend of 2p per share and, under our dividend policy announced last year, we currently expect to pay a final dividend of 3p (2014: 3p interim and 2p final). This level of dividend represents a yield of 7.2% based on the share price at the date of this report. The interim dividend will be paid on 3 August 2015 to those shareholders on the register on 3 July 2015. The shares will be ex-dividend on 2 July 2015.

As ever I would like to thank our staff for their hard work and commitment.

Whilst we expect trading conditions to remain competitive, with our continued investment in our key products and robust business model, we remain confident about the outlook for the remainder of the year.

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

Risk

EDP's business operations rely significantly on the efficient and uninterrupted operation of its information technology systems and networks.

Our computer network may be vulnerable to unauthorised access, viruses and other disruptive problems.

Potential impact

Any damage or interruption to EDP's networks, however caused, could have a material adverse effect on the delivery of our products and services.

A party that is able to override security measures could misappropriate proprietary information or cause disruption to our operations.

Mitigation

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.

Product technology advances

Risk

The markets in which EDP operates are characterised by evolving technology, market practices and industry standards.

Potential impact

Competitors could develop superior products or more cost-effective techniques which could render our products uncompetitive or less acceptable to the market. This could result in the loss of new revenue opportunities or the non-renewal of contracts by existing customers.

Mitigation

We have an ongoing commitment to research and development along with product management 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

Risk

As with most other businesses in the UK, our operations can be adversely affected by a significant downturn in the economy.

Potential impact

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.

Mitigation

We seek to ensure that a significant proportion of our revenues are derived from long-term contracts with our customers, that our products appeal to businesses operating in a range of business sectors and that payments for our recurring fees are received annually in advance.

Competitor activity

Risk

EDP operates in a competitive environment.

Potential impact

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.

Mitigation

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 employees

Risk

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 retention of the services of EDP's key employees cannot be guaranteed.

Potential impact

The loss of key employees could have a material adverse effect on EDP.

The failure to retain and develop key technical skills and product knowledge could hinder EDP's future prospects.

Mitigation

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

22 May 2015

The Directors at the date of this half-yearly financial report are:

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 22 May 2015.

The condensed financial information is not the Company's statutory accounts. The interim financial information for the six month periods ended 31 March 2014 and 31 March 2015 has not been audited. The comparative figures for the financial year ended 30 September 2014 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 2015 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 2014, 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 2014, as described in those financial statements.

The following new standards, amendments to existing standards or interpretations became effective during the period to 31 March 2015 but had no material impact on this consolidated financial information:

- IFRS 10 (amended) 'Consolidated Financial Statements';

- IFRS 12 (amended) 'Disclosure of Interests in Other Entities';

- IAS 19 (amended) 'Employee Benefits';

- IAS 27 (amended) 'Separate Financial Statements';

- IAS 32 (amended) 'Financial Instruments: Presentation';

- IAS 36 (amended) 'Impairment of 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.

The following new standards 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';

- IFRS 15 'Revenue from Contracts with Customers';

- IAS 1 (amended) 'Presentation of Financial Statements';

- IAS 16 (amended) 'Property, Plant and Equipment';

- IAS 28 (amended) 'Investments in Associates and Joint Ventures';

- IAS 38 (amended) 'Intangible Assets';

- IAS 41 (amended) 'Agriculture'; and

- amendments to various standards resulting from Annual Improvements 2012-2014 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 2014, 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 IAS 19. As a result of the significant fall in corporate bond yields during the period, the discount rate used to value the present value of the scheme's liabilities was reduced from 3.9% at 30 September 2014 to 3.2% at 31 March 2015. As a consequence of the revised discount rate assumption an actuarial loss of £564,000, net of tax, has been recognised in Other Comprehensive Income.

The Directors have reviewed the classification of the Group's two freehold properties which are currently being marketed for sale. They have concluded that the property in Sheffield, on which an offer was accepted during the period under review, now meets the definition as an asset held for sale and has been transferred from fixed to current assets at 31 March 2015.

In the six months to 31 March 2015 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.

7. 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.

8. Earnings per share

Basic earnings per share is calculated by dividing the profit after tax of £142,000 (2014: £161,000) by

12,610,976 (2014: 12,567,899) being the weighted average number of shares in issue during the period. Basic earnings per share is 1.13p (2014: 1.28p).

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 £142,000 (2014: £161,000) by 12,784,066 (2014: 12,755,782) being the weighted average number of shares in issue adjusted

for the effects of all dilutive potential ordinary shares. Diluted earnings per share is 1.11p (2014: 1.26p).

9. Dividends

The 2014 final dividend of 2.0p per share was approved by shareholders during the period to 31 March 2015 and a liability of £252,000 has been recognised in this half-yearly report.

The Directors announce an interim dividend of 2.0p per share (2014: special interim dividend 3.0p per share) payable on 3 August 2015 to shareholders who are on the register at 3 July 2015. This interim dividend, amounting to £252,000, (2014: special interim dividend £379,000) has not been recognised as a liability in this half-yearly report.

The Group invests its surplus cash in fixed-term deposit accounts held within recognised UK-based banks. Where the fixed terms are in excess of three months, the deposits are classified as investments in the Group balance sheet.

During the period an offer was accepted on the Group's surplus freehold property in Sheffield. The Directors consider that the property now meets the definition as an asset held for sale and have transferred it into current assets at its previous carrying value.