Preliminary Results

14 December 2010

Electronic Data Processing PLC (EDP)

Preliminary results for the year ended 30 September 2010

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

Highlights:

·; Turnover £5.58 million (2009: £5.84 million) - reduction of 4.5% reflecting the fact that during the first half of the prior year the full effects of the recession had not yet impacted.

·; Revenues have now stabilised and increased modestly in each of the last two half-year periods. 

·; Continuing strong contracted recurring software revenues represent 77% of total revenue (2009:74.5%).

·; Adjusted operating profit £704,000 (2009: £707,000), represents an underlying operating margin of 12.6% (2009: 12%), as cost saving measures took effect.

·; Pre-tax profit £584,000 (2009: £456,000) up 28%.

·; Hosting revenues now represent 30% of total revenues (2009: 23%) as more customers decide to have their software delivered through the "cloud".

·; Continuing commitment to R&D expenditure of £0.9 million in the year.

·; Latest versions of principal software products selling well.

·; Strong debt-free balance sheet; cash balances in excess of £2.8 million at 30 September 2010 (2009: £2.4 million).

·; Further £2.15 million cash received post year-end, the balance of the proceeds from the sale of the Group's head office.

·; Final dividend maintained at 2.0p per share.

Michael Heller, Chairman of EDP, said:

"We have recently seen some signs of improved optimism in our markets but our customers still remain extremely cautious about the strength of the recovery in the economy. The actions that we have taken within the business over the last few years mean that we are well placed to deal with this continuing uncertainty and we can be cautiously optimistic about the future."

For further information please contact:

www.edp.co.uk

Chairman's Statement

Turnover for the year to 30 September 2010 was £5.58 million compared with £5.84 million last year. This reduction of 4.5% reflects the fact that during the first half of the prior year, we had not yet felt the full effects of the recession. During the year under review we have seen revenues stabilise and increase marginally in each of the two half-year periods. 

Trading conditions have remained challenging and the fact that revenues have stabilised can be attributed to the introduction of the latest versions of our principal software products. The increased functionality they provide allows our customers to run their businesses more efficiently and also drive their own sales growth.

Statutory pre-tax profit for the year was £584,000 up from £456,000 last year. Adjusted operating profit was £704,000 (2009: £707,000) which gives an operating margin of 12.6% (2009: 12%). This underlying cash-based measure excludes non-cash IFRS charges and credits. Operating profit has been maintained and margins slightly improved following the cost-saving measures which were implemented in the previous year.

Our contracted recurring revenues, which relate to annual software licences and hosting fees, remain strong and represented 77% of turnover (2009: 74.5%). It is pleasing to see our application hosting revenues continue to grow as more customers appreciated the significant benefits that the outsourcing of their software applications can bring. These now represent 30% of our total turnover, up from 23% last year.

We have maintained our focus on cash collection and working capital management and since 1 October 2009 we have seen only two small customers go into administration with a loss of annual income of less than £5,000.

Total research and development expenditure during the year was £0.9 million (2009: £1.0 million). Our R&D effort has focussed principally on the continued enhancement of Quantum VS and Vecta. Certain aspects of our development expenditure fulfil the requirements under IFRS for it to be capitalised. The balance is written off through the income statement. Further details are provided in the Chief Executive's statement.

On 3 August 2010 we announced that we had exchanged contracts to sell our freehold head office building in Sheffield for a cash consideration of £2.3 million. This sale was subject to shareholder approval and the transaction was completed after the year end on 29 October 2010 generating a profit of approximately £330,000 which will be incorporated in the results for the half year ended 31 March 2011.

Net assets at 30 September 2010 were £6.7 million compared with £7.0 million at 30 September 2009. This reflects a reduction of approximately £424,000 in the Group's defined benefit pension scheme and is described more fully in the Chief Executive's statement. Year-end cash balances amounted to £2.8 million (2009: £2.4 million) which is before we received the net sale proceeds in October from the disposal of Beauchief Hall.

The Board is proposing to maintain the final dividend at 2.0p per share giving a total for the year of 2.713p (2009: 2.713p). If approved by shareholders, the final dividend will be paid on 6 April 2011 to those shareholders on the register at 4 March 2011. The shares will be ex-dividend on 2 March 2011.

On 6 October 2010 James Storey was appointed Group Finance Director having previously been Group Financial Controller and Company Secretary. James joined us in April 2009 and has made a significant contribution to the business since that time.

As ever I would like to thank all our members of staff for their input over what has been another challenging year.

We have recently seen some signs of improved optimism in our markets but our customers still remain extremely cautious about the strength of the recovery in the economy. The actions that we have taken within the business over the last few years mean that we are well placed to deal with this continuing uncertainty and we can be cautiously optimistic about the future.

Michael Heller

Chairman

13 December 2010

Chief Executive's Statement

Total revenues for the year to 30 September 2010 were down 4.5%. The full effects of the recession did not take hold until the second half of the previous financial year. However, the second half of this year saw an improvement of 1.5% over the first half. This represented the second successive period of modest half-year on half-year revenue growth.

Trading conditions have remained tough over the past year. We saw some improvement in business confidence in the Spring, however this was quickly followed by a return to uncertainty about the strength of the recovery. New business opportunities have remained scarce as businesses generally have kept a tight grip on their finances. Existing users have continued to carefully examine any IT expenditure which they consider to be discretionary. This has continued to impact all areas of our non-recurring revenues which include software licences, upgrades, training and consultancy services.

As a result of these factors there has been some downwards price pressure in our markets. We have been able to win new business orders, particularly for Vecta through a subtle shift in our charging structure whereby we have reduced upfront costs for customers but strengthened the on-going revenues. This has had an impact on the level of non-recurring initial licence fee revenue during the year. That our revenues have stabilised and shown modest growth in the current market is due to the fact that over the last couple of years we have strengthened our sales team which has in turn allowed us to fully exploit the introduction of the latest versions of our software products.

Our business model is built around the strength of our recurring revenues which cover our day to day cash operating costs. Recurring revenues principally include annual software licences and periodic software hosting services which are provided under contracts which typically run for up to 5 years. These revenues accounted for 77% of our turnover up from 74.5% last year. Our revenues are well spread with our top ten customers accounting for less than 28% of our total turnover and our largest customer represents no more than 6%.

We have actively managed the Group's cost base over the last few years to mitigate the effects of the recession. Our headcount has remained stable over the year and currently stands at 76. As anticipated, the cost saving measures we implemented during the year to September 2009 have stood us in good stead and as a result of these savings we have been able to maintain our operating profitability.

Once again I would like to thank my fellow Directors and all members of staff for their hard work and commitment during the year.

Operational Review

Our business is focussed on two principal product groups - software applications for distributors where Quantum VS is our latest, fully graphicalised product; and Vecta, our market-leading Sales Intelligence product. However, these markets are not mutually exclusive and a number of users of our distribution applications also use Vecta.

Our software products can be delivered on either a traditional licence fee basis or they can be "hosted" by EDP. In the first instance the customer installs our software on their own servers and they are responsible for all day to day maintenance and back-ups etc. Using the hosting model means that the customer effectively outsources their hardware, operating system and software applications. It gives customers the benefits of effectively having their software delivered through the "cloud". The hosting service is provided in Milton Keynes from our own in-house, secure facility.

Long-term contracts are a feature of both methods of software delivery and they both provide the Group with strong and predictable recurring revenues. There is a modest price premium for hosting over a traditional software licence. However, hosting typically has lower up-front charges but stronger revenues on an on-going basis. Notwithstanding the operational benefits that hosting can deliver, the payment profile can offer cash-flow benefits to customers.

Product and services update: Distribution applications

Quantum VS is a modern, fully graphicalised software application which addresses the needs of distribution businesses operating across a variety of vertical markets. I am pleased to report that over the last twelve months 7 customers have signed up for Quantum VS and a number of implementations are currently underway. There are also a significant number of users of our established but older software products who are currently evaluating it and we expect this number to increase over the coming year.

As noted last year, a product roadmap has been established to ensure that we bring in the key functionality that the users of our four established products (Merchant, Charisma, Esprit and The Business Programme) enjoy. We have committed, and will continue to commit, a significant part of our R&D effort to ensuring that our products remain up to date to meet the continually evolving requirements of our customers and the marketplace in general.

Over the next twelve months we expect Quantum VS to principally provide us with opportunities to migrate users of our other products. Beyond that, and when the economy generally shows signs of sustainable improvement, Quantum VS will provide us with a platform to enable us to exploit new-business opportunities.

Product and services update: Vecta

The latest version of our market-leading sales intelligence product, Vecta 7, was released on schedule at the beginning of the year. We have had significant interest in this version from existing users and new customers alike and we have received 10 orders for the product to date.

Vecta 7 is browser-based, meaning that users can access their real-time sales information from anywhere at any time over the internet, rather than being restricted to either using the product in their office or using historic information downloaded to a laptop at a fixed point in time.

The use of the browser completely opens up information to sales teams. In addition to allowing access from a laptop with an internet connection, the mobile version of the product is also tailored for numerous handheld devices including iphones, blackberries and the ipad. The release of the mobile version is a significant step forwards in extending Vecta's capabilities and we are now working on an implementation for devices that use the Android operating system.

Product and services update: Hosting

We are unique amongst our competitors in being able to offer our own in-house hosting facility. The number of customers using it has grown steadily over the last ten years and we currently host 97 customers' applications, up from 83 this time last year. These customers now represent 30% of our revenues compared to 23% last year.

As expected, hosting has become the default option for all customers who have purchased Vecta 7. This model is particularly suited to delivering a browser-based product allowing our customers to exploit all the benefits of using a SaaS (software as a service) solution.

We expect to see the number of customers electing to host their software applications with us continue to grow.

Property

We completed the sale of Beauchief Hall, our head office in Sheffield on 29 October 2010 for £2.3 million cash. The proceeds have been added to our existing cash resources and will be used to develop the Group. As a part of the disposal agreement we are renting back Beauchief Hall for a minimum period of three months. We will move to modern rented premises which are more suitable for our operational needs. A number of appropriate alternative offices have been identified and we are in negotiations over lease terms. Further, we expect to be able to make a modest saving in comparison to the cost of occupying, securing and maintaining Beauchief Hall.

Three of the Group's four remaining freehold properties are currently being marketed for sale or to let as they are no longer required for operational purposes. Further cost savings can be made once we have disposed of them. However, the market for such properties remains quiet at present.

Financial Review

Turnover for the year was £5.58 million compared with £5.84 million, a reduction of 4.5%. However, we have seen modest growth over the last two six-monthly periods. Revenue for the six months to 30 September 2010 was £2.81 million, compared to £2.77 million for the six months to 31 March 2010 and £2.72 million for the six months to 30 September 2009.

Group profit before tax under IFRS was £584,000 (2009: £456,000). Operating profit was £553,000 (2009: £347,000).

These results are stated after a net charge of £151,000 (2009: £121,000) relating to a number of non-cash items which arise under IFRS (principally amortisation of intangible assets, pension scheme charges and the capitalisation of development costs).

Excluding these non-cash IFRS items, our adjusted operating profit for the year was £704,000. This compares with £707,000 (excluding the one-off reorganisation costs incurred during 2009). This cash-based measure of profit is regularly used by the Board to monitor the performance of the business on a day-to-day basis.

The cost savings that we successfully implemented last year have meant that we have been able to maintain operating profit during the year despite lower turnover. Pleasingly our operating margin has increased to 12.6% (2009:12%).

£27,000 of our R&D expenditure has been capitalised during the year as it meets all of the criteria for capitalisation under IAS 38. We expect to capitalise further costs over the coming year and, in due course, to commence amortising the resultant asset. The impact of both capitalising and amortising are excluded when calculating the "adjusted operating profit" figure mentioned above.

Interest income was £31,000 compared with £109,000 last year. The reduction is primarily due to lower cash balances following the £6 million share buy-back last year.

The tax charge for the year was £160,000 (2009: £129,000) which gives an effective tax rate of 27.4% (2009: 28.3%).

Earnings per share (EPS) for the year increased to 3.38p from 1.74p last year due to both higher post tax profits and a significant reduction in the number of shares in issue following last year's share buy-back.

Cash balances at 30 September 2010 were £2.8 million, an increase of £400,000 over the year. The principal movements being strong operating cash flows of £809,000, interest received of £33,000, tax paid of £118,000 and dividends paid of £340,000. Subsequent to 30 September 2010 we received a further £2.15 million being the balance of the proceeds from the sale of Beauchief Hall.

Net assets are £6.7 million at 30 September 2010 compared with £7.0 million at 30 September 2009. This is principally due to a reduction in the position of the Group's defined benefit pension scheme recognised under IAS 19 of £424,000, net of deferred tax. The cost of dividends was £340,000.

The change in the position of the defined benefit pension scheme arises from a further significant reduction in the discount rate used to value future scheme liabilities. This discount rate is derived from the current long-term corporate bond rate which has again fallen over the last year. This has left the scheme with a small deficit, for the first time in a number of years, under IFRS of £364,000 (£266,000 net of deferred tax). The future direction of the scheme is currently being reviewed.

Outlook

Businesses in the markets that we address were relatively slow to feel the full effects of the recession and we expect that they may also feel slightly later the benefits of any recovery.

We are committed to ensuring that we continue to deliver software products and services that remain relevant to the needs of our customers, thereby protecting our recurring revenues. The continued onwards development of our products and services should allow us to address new-business opportunities effectively. With a carefully managed cost-base and a cash generative business model we can look forwards with cautious optimism.

Julian Wassell

Chief Executive

13 December 2010

Consolidated Income Statement

for the year ended 30 September 2010

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2010

Consolidated Balance Sheet

at 30 September 2010

Consolidated Statement of Changes in Equity

for the year ended 30 September 2010

Consolidated Cash Flow Statement

for the year ended 30 September 2010

Notes

1. Financial Information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2009 or 2010 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the registrar of companies, and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The financial information has been prepared on a basis consistent with that presented in the 30 September 2009 financial statements with the exception of a number of presentation and disclosure changes relating to the adoption in the year of IFRS 8 "Operating Segments" and IAS 1 (Revised) "Presentation of Financial Statements". The impact on the financial information of adoption of these new IFRSs is discussed below.

2. Accounting Policies

Basis of preparation

The financial statements have been prepared in accordance with adopted IFRS and under the historical cost basis except for the following material items in the consolidated balance sheet:

 - certain property is stated at deemed cost;

 - assets held for sale are stated at the lower of previous carrying amount and fair value less costs to sell; and

 - the defined benefit pension liability is recognised as the net total of the plan assets and the present value of the defined benefit obligation.

Basis of consolidation

The consolidated financial information incorporates the accounts of Electronic Data Processing PLC and all its subsidiaries. Such accounts are all made up to 30 September 2010.

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial information of subsidiaries is included in the consolidated financial information from the date that control commences until the date that control passes. Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial information.

Revenue

Revenue represents the sales of goods and services at invoiced value less amounts relating to future periods and excluding value added tax and transactions between Group Companies. Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured.

Initial charges for the sale of software products and upfront hosting costs are invoiced and payable in full upon delivery of the product to customers and are recognised as revenue immediately. Recurring licence fees are recognised evenly over the period to which they relate. Revenue from the provision of professional services, including training, implementation and consultancy, is recognised when the services have been performed. Computer equipment sales are recognised on delivery to customers. Equipment maintenance charges are recognised evenly over the period to which they relate.

Property, plant and equipment

Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses. Land is not depreciated. The Directors assess the residual values and useful economic lives of the properties on an annual basis. Depreciation is provided so as to write off the cost, or deemed cost, less the estimated residual value of each asset in equal instalments over its estimated useful life from the time it becomes operational, at the following rates:

Assets held for sale

A non-current asset is classified as held for sale if, at the Balance Sheet date, its carrying value will be recovered principally through sale rather than through continuing use, it is available for immediate sale and that sale is highly probable within one year. On initial classification as held for sale, non-current assets are measured at the lower of previous carrying amount and fair value less costs to sell, with any adjustments taken to the Income Statement. The same applies to gains and losses subsequent to re-measurement.

Employee benefits - pensions

The Group operates both defined contribution and defined benefit pension schemes. The premiums relating to defined contribution schemes are charged to the Income Statement in the period in which they accrue.

The Group's net obligation in respect of its defined benefit pension plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan. The calculation is performed by a qualified actuary using the projected unit credit method.

Actuarial gains and losses occur when the actual returns on scheme assets differ from those previously expected by the actuary. All actuarial gains and losses as at 1 October 2004, being the date of transition to IFRS, were recognised in full. The Group recognises actuarial gains and losses arising subsequent to 1 October 2004 directly into equity through Other Comprehensive Income in the period they occur. All other movements in the pension asset or liability are recognised in the Income Statement for the relevant period.

Changes in Accounting Policy

Segmental Reporting

Following the introduction of IFRS 8 "Operating Segments", effective for accounting periods beginning on or after 1 January 2009, the Company has determined and presented operating segments based on the internal financial reporting that is provided to the Executive Directors who collectively are the Group's Chief Operating Decision Maker. Under IFRS 8 the Company has determined that it has one reportable segment. Comparative segment information has been re-presented to conform with the transitional requirements of IFRS 8. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no effect on earnings per share.

Presentation of Financial Statements

In accordance with IAS 1 (Revised) "Presentation of Financial Statements", which became effective during the year, the Group presents a consolidated statement of equity along with two performance statements, the consolidated income statement and the consolidated statement of comprehensive income. Since the change in accounting policy only impacts presentation, there is no effect on earnings per share.

3. Segmental Analysis

In accordance with IFRS 8 "Operating Segments", 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"). The Group has determined that, 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.

The results of the reportable segment are shown below. Segment performance is measured based on segment profit before tax and IAS 19 defined benefit pension scheme adjustments, as shown in the internal management reports that are reviewed by the CODM.

Major Customers

No customer represents revenue in excess of 10% of total revenue (2009 : none).

Geographical analysis

Geographical segment revenues, based on the geographical location of customers, are as follows:

All of the Group's non-current assets are located in the United Kingdom.

4. Earnings per share

Earnings per share is calculated by dividing the profit for the period attributable to equity holders of the parent of £424,000 (2009: £327,000) by 12,530,976 (2009: 18,773,067) being the weighted average number of shares in issue during the year.

Basic and diluted earnings per share are both 3.38p (2009: 1.74p).

5. Dividends paid and proposed

6. Share Capital

Each holder of an ordinary share is entitled to one vote for each share held at all meetings of shareholders and will be entitled to any dividends declared by the Board of Directors with the exception of treasury shares which do not carry any voting or dividend rights.

7. Subsequent events

On 29 October 2010, the Group completed the freehold disposal and subsequent lease back of its head office at Beauchief Hall, Sheffield. The consideration received was £2.3m and after deducting related selling costs the profit on disposal was approximately £330,000.

This preliminary announcement was approved by the Board of Directors on 13 December 2010.