2007 Final Results

Sanderson Group PLC 06 December 2007 FOR IMMEDIATE RELEASE 6 DECEMBER 2007 SANDERSON GROUP PLC ('Sanderson' or 'the Group') Preliminary Results for the year ended 30 September 2007 'Strengthened market position provides an excellent platform for growth' Highlights • Revenue up 14% at £18.17m (2006: £15.90m) • Adjusted* operating profit up 6% at £3.47m (2006: £3.28m) • Proposed total dividend of 2.7p per ordinary 10p share in respect of the financial year ended 30 September 2007 (2006: 2.6p) - an increase of 4% • 104% of adjusted* operating profit from continuing operations converted to cash (2006: 88%). • Adjusted* basic earnings per share at 6.1p (2006: 7.6p), reduced as a result of a normalised tax charge in the current year • Pension deficit eliminated under IAS 19 valuation measure at 30 September 2007 (2006: £1.8m deficit) • Two acquisitions in the current year, Elucid in February 2007 and Retail Business Solutions Group Limited in September 2007, both trading profitably *Before amortisation of acquisition related intangibles, share based payment charges and other operating income Commenting on the results, Chairman, Christopher Winn, said: 'This has been a year of significant progress for the Group, with a strong second half year trading performance and two further acquisitions which considerably strengthen the Group's position as a leading supplier to the Multi-channel retail market. 'Following the acquisitions, the enhanced Sanderson presence in the Multi-channel retail market and the expanded range of products and services provides improved opportunities for both cross-selling within the extended customer base and securing new business. The Group is well positioned for further growth'. Enquiries: Christopher Winn, Executive Chairman Tel: 02476 555466 David O'Byrne, Managing Director Tel: 01709 787787 Adrian Frost, Finance Director Tel: 02476 555466 Paul Vann, Winningtons Financial Tel: 020 7256 9445 Mobile: 07768 807631 SANDERSON GROUP PLC Preliminary Results for the year ended 30 September 2007 CHAIRMAN'S STATEMENT Overview The trading results for the year to 30 September 2007 show that revenue has grown by 14% to £18.17m and that adjusted operating profit has grown by 6% to £3.47m. During the year the Group increased its presence in the Multi-channel retail market by acquiring the Elucid business in February 2007 and Retail Business Solutions Group Limited ('RBS') in September 2007. In addition to our established Manufacturing business, the Group now offers solutions across the full range of the Multi-channel retail market - from point of sale systems to back office, head office, mail order, e-commerce and fulfilment functions plus niche sectors such as Wholesale distribution. With customers ranging from start-up mail order businesses to major high street retailers, the Group is well placed to benefit from activity levels in this strategic sector. Financial Results Group revenue for the year increased by 14% to £18.17m from £15.90m last year. The increase reflects the growth in the Multi-channel retail business, which is expected to account for around 75% of Group revenues in the year to 30 September 2008. Adjusted operating profit for the year rose by 6% to £3.47m compared with £3.28m last year. Profit before tax declined from £2.16m to £1.94m as a result of a £0.3m increase in the charge for the amortisation of acquisition-related intangibles The tax charge for the Group was £589,000, (an effective rate of 30.4%), compared with a tax credit of £17,000 in the comparative period. This increase in the tax charge led to the adjusted basic earnings per share falling from 7.6 p to 6.1p. If this year's effective rate of 30.4% applied to last year's earnings, the comparative eps would have been 6.0p. Cash balances increased to £935,000 from £463,000 in the comparative period, with 104% of operating profit from continuing activities being converted into cash. Acquisitions were financed by bank debt and net debt increased to £11.7m (2006: £2.5m). Whilst this level of debt represents 3.4 times the reported adjusted operating profit for the year, the timing of the RBS acquisition, two weeks before the year end, added in excess of £9m to the year end debt figure but contributed less than £100,000 to operating profit. The level of debt is expected to reduce to around 2.5 times next year's adjusted operating profit. As reported in the interim results and following the acquisition of Elucid, the Group carried out a strategic review of its products aimed at the mid-tier mail order and e-commerce market. This resulted in a decision to rationalise development costs and to discontinue further development of an existing product. The discontinued operation incurred a loss of £385,000 after tax during the year, inclusive of all closure costs. In the comparative period the same operation incurred a loss of £183,000. The 2006 results have been restated to show all revenue and costs relating to this operation as being from discontinued operations. Dividend The Board is keen to ensure that shareholders benefit from the trading performance of the Group through a progressive dividend policy. Subject to approval at the Annual General Meeting of Shareholders, expected to be held on 14 February 2008, a final dividend of 1.55p per ordinary share is proposed and will be paid on 14 March 2008 to shareholders on the register at the close of business on 22 February 2008. Together with the interim dividend of 1.15p per ordinary share, this final dividend represents a total dividend for the year of 2.7p, an increase of 4%. Business Review The Group provides a wide range of software based solutions to the Manufacturing and Multi-channel retail markets. These solutions consist of our own software together with third party products, which are installed and supported directly by Sanderson staff. This approach ensures that a high quality, consistent and responsive service is delivered to customers and enables the Group to maintain tight control over its operations. The Group has a proven business model which generates a significant proportion of revenue from annual software licences and support services. These recurring revenues represented £9.43m of revenue in the year to 30 September 2007, some 52% of total revenue (2006: £8.84m, 56%) and demonstrates the benefits of a large, established customer base. A further £7.31m or 40% of revenue was generated from the provision of additional products and services to existing customers (2006: £5.61m, 35%) with new customers accounting for the balance of £1.43m (2006: £1.45m). Review of Manufacturing business The Manufacturing business accounted for 37% (£6.68m) of Group revenue in the year to 30 September 2007 (2006: £7.40m, 46%) and continues to provide IT solutions to a large customer base in sectors such as print, food, engineering, plastics, electronics and furniture. Revenue declined when compared to 2006, largely as a result of slow trading reported in the first half of the current year. As anticipated, activity levels and order intake improved in the second half and the business ended the year with a strong trading performance. This is expected to continue into 2008. There were some notable successes in the print sector, including large orders from Magnadata, Richard Clay and Anstey Wallcoverings. The Manufacturing business remains highly profitable, with operating margins in excess of 15% of revenue and demonstrates the value of the Intellectual Property software model. Review of Multi-channel retail business The Multi-channel retail business accounted for 63% (£11.49m) of Group revenue in the year to 30 September 2007, representing an increase of 35% compared with £8.50m in the previous year. The value of sales to new Multi-channel clients in the year grew by over 50% compared with the previous year and included new clients such as Group 4 Securicor Sweden and the Royal Botanical Gardens, Kew. RBS made a small contribution to Group revenue and a substantial increase in sales for the Multi-channel business is anticipated in the coming year. The growth of online sales continues to generate activity within retail, e-commerce and mail order businesses. Increasing security requirements for retailers have further increased the demand for our products and services. In February 2007, the Group acquired the business and assets of the Elucid Multi-channel software business for a consideration of £1.40m. Elucid has a strong product offering aimed at the mid-tier mail order and e-commerce market and has over 50 existing customers. Elucid has now been fully integrated and forms an important part of the Sanderson Multi-channel business. In September 2007, the Group acquired RBS for up to £14m in cash and shares. RBS is a well established provider of solutions to the retail sector and markets and supports solutions which provide front and back office electronic point-of-sale systems (including the highly successful Retail-J software) together with a full range of IT services. RBS employs 74 people, bringing the total number of employees for the Group to just over 300. With approximately 200 RBS customers throughout the UK and Ireland, including Blacks Leisure, Harrods and French Connection, the combined Sanderson customer base now consists of over 600 retail and Multi-channel clients. The enlarged and enhanced Sanderson product and services portfolio will provide good opportunities for cross-selling and the managed service capability within RBS provides an exciting opportunity to further develop the Group. The success of RBS in gaining new clients, with recent additions including Slater Menswear and Wyevale Garden Centres, is expected to provide additional momentum for future growth. Following the RBS acquisition, the profile of the Group has changed significantly and we expect around 75% of future revenue to originate within the Multi-channel retail business, with the Manufacturing business accounting for the balance. Strategy We continue to develop the Group by a combination of organic growth complemented by selective acquisitions. We will consider acquisition opportunities as they are identified, but our focus in the coming year is to complete the integration of RBS and to deliver the benefits available from this integration. In addition, we will look to take advantage of the Group's strong position in its target markets to deliver further growth. Staff The acquisitions completed during the year have increased staff numbers to just over 300 and we would like to welcome the new employees to our enlarged Group. We would also like to thank our colleagues for their commitment, expertise and continued dedication in working with our customers and partners. Outlook We previously stated our intention to accelerate the rate of progress and the 2007 acquisitions together with the February 2006 acquisition of Retail Systems have nearly doubled the size of the Group. The second half trading performance of the Group has been strong and we have made a good start to the new financial year. Sanderson is well positioned to deliver further value in the coming year. The four acquisitions made since flotation have substantially increased the size of the Group and we believe that we are well placed to accelerate growth rates and deliver further value as a result of our strengthened market position. Christopher Winn Chairman 6 December 2007 Consolidated income statement for the year ended 30 September 2007 2007 2006 £000 £000 Note Revenue 3 18,165 15,896 Cost of sales (3,448) (2,591) -------- -------- Gross profit 14,717 13,305 Technical and development costs (6,714) (6,019) Administrative expenses (4,212) (3,590) Sales and marketing costs (1,532) (1,379) Other operating income - 119 -------- -------- Results from operating activities 2,259 2,436 Results from operating activities before adjustments in respect of the following: 3 3,466 3,278 Amortisation of acquisition related intangibles (621) (319) Share based payment charges (586) (642) Other operating income - 119 -------- -------- Results from operating activities 2,259 2,436 Finance income 371 288 Finance expenses (695) (563) -------- -------- Profit before tax 1,935 2,161 Taxation 5 (589) 17 -------- -------- Profit for the period from continuing operations 1,346 2,178 Discontinued operations Loss for the period from discontinued operations (385) (183) -------- -------- Profit for the year attributable to equity holders of the parent 961 1,995 ======== ======== Earnings per share From continuing operations Basic earnings per share 6 3.2p 5.3p Diluted earnings per share 6 3.0p 4.9p ======== ======== From continuing and discontinued operations Basic earnings per share 6 2.3p 4.8p Diluted earnings per share 6 2.1p 4.5p ======== ======== Consolidated balance sheet at 30 September 2007 2007 2006 £000 £000 Non-current assets Property, plant and equipment 589 585 Intangible assets 40,834 27,051 Employee benefits 9 - Deferred tax assets - 488 -------- -------- 41,432 28,124 -------- -------- Current assets Inventories 392 258 Trade and other receivables 8,180 4,127 Income tax receivable - 211 Cash and cash equivalents 935 463 -------- -------- 9,507 5,059 -------- -------- Current liabilities Bank loans and borrowings (2,023) (528) Trade and other payables (5,779) (2,351) Income tax payable (622) - Deferred contingent consideration (1,888) - Deferred income (6,153) (4,278) -------- -------- (16,465) (7,157) -------- -------- Net current liabilities (6,958) (2,098) Total assets less current liabilities 34,474 26,026 Non-current liabilities Loans and borrowings (10,616) (2,420) Deferred contingent consideration - (464) Deferred income - (587) Deferred tax liabilities (1,316) - Employee benefits - (1,849) -------- -------- (11,932) (5,320) -------- -------- Net assets 22,542 20,706 ======== ======== Equity attributable to equity holders of the Company Share capital 4,228 4,181 Share premium 14,758 14,578 Shares to be issued 495 495 Retained earnings 3,061 1,452 -------- -------- Total equity 22,542 20,706 ======== ======== Consolidated cash flow statement for the year ended 30 September 2007 2007 2006 £000 £000 Cash flows from operating activities Profit for the period 961 1,995 Adjustments for: Amortisation of intangible assets 736 360 Depreciation 242 160 Share based payment expense 586 642 Net finance expense 324 275 Income tax expense 589 (96) Profit on disposal of property, plant and equipment - (119) --------- --------- Operating cash flow before changes in working capital and provisions 3,438 3,217 Movement in trade and other receivables (1,536) 893 Movement in inventories (1) (51) Movement in trade and other payables 1,318 (1,372) Payments to employee benefit plan (134) (80) --------- --------- Cash generated from operations 3,085 2,607 Interest paid (260) (178) Income tax paid (525) (639) --------- --------- Net cash from operating activities 2,300 1,790 --------- --------- Cash flow from investing activities Proceeds from sales of property, plant and equipment - 530 Purchase of plant and equipment (100) (120) Development expenditure capitalised (69) (271) Purchase of intellectual property (50) (200) Purchase of trade and assets (1,142) - Acquisition of subsidiary, net of cash balances acquired (9,048) (1,480) --------- --------- Net cash flow from investing activity (10,409) (1,541) --------- --------- Cash flow from financing activities Proceeds from bank borrowing, net of arrangement costs 10,219 1,375 Repayment of bank borrowing (500) (625) Repayment of finance lease principal (28) (36) Equity dividends paid (1,110) (1,024) --------- --------- Net cash flow from financing activities 8,581 (310) --------- --------- Net increase / (decrease) in cash and cash equivalents 472 (61) Cash and cash equivalents at beginning of year 463 524 --------- --------- Cash and cash equivalents at the end of the year 935 463 ========= ========= Notes 1 Financial statements The financial information set out herein does not constitute the Group's statutory accounts for the year ended 30 September 2007 but is derived from those financial statements. The statutory accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies following the Annual General Meeting. The comparative information in respect of the period ended on 30 September 2006 has been derived from the audited statutory accounts for the year ended on that date, upon which an unqualified audit opinion was expressed and which did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The audited financial statements will be available by contacting the Company Secretary at the Company's Registered Office. 2 Basis of preparation The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The Group has applied all accounting standards and interpretations by the International Accounting Standards Board and International Accounting Standards Interpretation Committee effective at the time of preparing the financial statements. 3 Segmental reporting The Group is managed as two separate divisions, manufacturing and multi-channel retail. Substantially all revenue is generated within the UK. Manufacturing Multi-channel Total 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 Revenue 6,673 7,397 11,492 8,499 18,165 15,896 ------- ------- ------- ------- ------- ------ Operating profit before amortisation and share based payment charge 976 1,229 2,490 2,049 3,466 3,278 ------- ------- ------- ------- Amortisation of acquisition related intangibles (621) (319) Share based payment charges (586) (642) Other operating income - 119 ------- ------ Operating profit 2,259 2,436 Net finance expense (324) (275) ------- ------ Profit before taxation 1,935 2,161 ======= ====== Property, plant and equipment 280 173 309 412 589 585 Intangible assets 8,950 8,950 31,884 18,101 40,834 27,051 Stock 68 78 324 180 392 258 Trade and other receivables 1,733 1,393 6,447 2,734 8,180 4,127 ------- ------- ------- ------- ------- ------ 11,031 10,594 38,964 21,427 49,995 32,021 ------- ------- ------- ------- Other unallocated assets and liabilities (27,453) (11,315) ------- ------ Net assets 22,542 20,706 ======= ====== 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, bank debt and creditor information by segment. Notes (continued) 4 Acquisitions of subsidiaries On 9 February 2007 the Group acquired the trade and certain assets and liabilities of the 'Elucid' business unit from K3 Business Technology Group plc, for cash and deferred cash consideration. The business develops and supplies IT software and related services. In the seven months to 30 September 2007 the business contributed £108,000 profit before taxation. The acquisition had the following effect on the Group's assets and liabilities at the acquisition date: Pre-acquisition Fair value Recognised value on carrying amount adjustment acquisition £000 £000 £000 Property,plant and equipment 12 - 12 Intangible assets - 733 733 Trade and other receivables 250 - 250 Trade and other payables - (105) (105) Deferred taxation - (220) (220) ---------- ---------- ---------- Net identifiable assets and liabilities 262 408 670 ---------- ---------- Goodwill on acquisition 722 ---------- 1,392 ========== Cash consideration paid at completion 1,112 Deferred cash consideration 250 Costs incurred 30 ---------- Total consideration 1,392 ========== The fair value adjustments relate to the recognition of intangible assets and holiday pay in accordance with IFRS 3: Business combinations and adjustments to accruals to recognise liabilities identified during the course of the period, net of deferred tax. Pre-acquisition carrying amounts were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values. In determining the fair value of intangible assets, the Group applied a discount rate of 15% to estimated cash flows. The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the workforce of the acquired business and the expected synergies to be achieved from integrating the Company into the Group's operations. On 14 September 2007, the Group acquired 100% of the issued share capital of Retail Business Solutions Group Limited for a combination of cash, deferred cash and share based consideration. The Company develops and supplies IT services and software. In the seventeen days to 30 September 2007, the Company contributed profit of £84,000 before tax. The acquisition had the following effect on the Group's assets and liabilities on the acquisition date: Pre-acquisition Fair value Recognised value on carrying amount adjustment acquisition £000 £000 £000 Property,plant and equipment 131 - 131 Intangible assets - 4,822 4,822 Inventories 133 - 133 Cash 3,598 - 3,598 Trade and other receivables 2,468 - 2,468 Trade and other payables (1,598) (28) (1,626) Income tax payable (492) - (492) Deferred income (1,407) - (1,407) Deferred tax liability 108 (1,446) (1,338) ---------- ---------- ---------- Net identifiable assets and liabilities 2,941 3,348 6,289 ---------- ---------- Goodwill on acquisition 7,972 ---------- 14,261 ========== Consideration paid: - cash 12,273 - shares issued (468,262 ordinary shares of 10p) 227 Costs incurred 373 ---------- 12,873 Deferred contingent consideration: - cash 1,500 Discount on deferred contingent consideration (112) ---------- Total consideration 14,261 ========== The fair value adjustments relate to the recognition of intangible assets and holiday pay in accordance with IFRS 3: Business combinations. The fair value of the shares issued represents the market value at the date of acquisition, net of deferred tax. The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the workforce of the acquired business and the expected synergies to be achieved from integrating the Company into the Group's operations and the anticipated value of new business the operation will be capable of securing. The deferred contingent consideration is payable between May 2008 and December 2008, based on the results of Retail Business Solutions Group Limited during a twelve month period ending between March 2008 and September 2008. The maximum provision has been made based on the forecast results of the Company. Pre-acquisition carrying amounts were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values. In determining the fair value of intangible assets, the Group applied a discount rate of 15% to estimated cash flows. 5 Taxation Continuing Discontinued Total operations operations 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 Current tax expense UK corporation tax for the current year 841 679 (165) (79) 676 600 Relating to prior periods 25 (515) - - 25 (515) ------- ------- ------- ------- ------- ------ Total current tax 866 164 (165) (79) 701 85 ------- ------- ------- ------- ------- ------ Deferred tax Deferred tax for the current year (277) (154) - - (277) (154) Relating to prior periods - (27) - - - (27) ------- ------- ------- ------- ------- ------ Total deferred tax (277) (181) - - (277) (181) ------- ------- ------- ------- ------- ------ Taxation charged / (credited) to the income statement 589 (17) (165) (79) 424 (96) ======= ======= ======= ======= ======= ====== Reconciliation of effective tax rate The current consolidated tax charge for the period is higher (2006: lower) than the standard rate of corporation tax in the UK of 30%. The differences are explained below. 2007 2006 £000 £000 Profit before tax: Continuing operations 1,935 2,161 Discontinued operations (550) (262) ---------- ---------- 1,385 1,899 Tax charge using the UK Corporation tax rate of 30% (2006: 30%) 416 570 Effects of: Expenses not deductible for tax purposes 97 47 Tax payable at less than 30% - (6) Losses not utilised in year (114) 101 Under / (over) provision in previous years 25 (542) Expenses not reported in income statement - (170) Change in temporary differences - (96) ---------- ---------- Total tax in income statement 424 (96) ========== ========== The overprovision for income tax in previous years relates to the tax treatment of the change to the Group's revenue recognition policy in accordance with the application note relating to UK Financial Reporting Standard No. 5, adopted in the year to 30 September 2004. 6 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 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: 2007 2006 £000 £000 Profit for the year 961 1,995 Result attributable to discontinued operations 385 183 --------- ----------- Profit for the year from continuing operations 1,346 2,178 Amortisation of acquisition related intangible assets 621 319 Share based payment charges 586 642 --------- ----------- Adjusted profit from continuing operations for the year 2,553 3,139 ========= =========== Number of shares: 2007 2006 No. No. In issue at the start of the year 41,813,482 40,813,482 Effect of shares issued in the year 20,583 604,396 ---------- ----------- Weighted average number of shares at year end 41,834,065 41,417,878 Effect of share options 1,946,775 1,938,639 Effect of deferred consideration 1,000,000 1,000,000 ----------- ----------- Weighted average number of shares (diluted) at year end 44,780,840 44,356,517 =========== ============ 2007 2006 (p) (p) Earnings per share: Basic 2.3 4.8 Diluted 2.1 4.5 --------- ----------- Earnings per share attributable to continuing operations: Basic 3.2 5.3 Diluted 3.0 4.9 --------- ----------- Adjusted earnings per share attributable to continuing operations: Basic 6.1 7.6 Diluted 5.7 7.1 --------- ----------- Earnings per share attributable to discontinued operations: Basic (0.9) (0.5) Diluted (0.9) (0.4) --------- ----------- 7 Dividends 2007 2006 £000 £000 Interim dividend of 1.15p per share (2006: 1.1p) 483 452 Final dividend relating to previous financial year of 1.5p per share (2006: 1.4p) 627 572 --------- ---------- otal dividend for the financial year 1,110 1,024 ========= ========== This information is provided by RNS The company news service from the London Stock Exchange

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