2009 Final Results

RNS Number : 6536D

Sanderson Group PLC

07 December 2009

 



FOR IMMEDIATE RELEASE                                                                                   7 DECEMBER 2009

SANDERSON GROUP PLC 

Preliminary Results for the year ended 30 September 2009

Improving performance after a challenging start to the year

Sanderson Group plc ("Sanderson" or "the Group"), the software and IT services business specialising in the multi-channel retail and manufacturing markets in the UK and Ireland, announces Preliminary Results for the financial year ended 30 September 2009. 

Highlights - Financial

• Revenues of £24.90m (2008: £27.55m). 

• *Adjusted operating profit of £2.76m (2008: £4.07m).

• *Adjusted basic earnings per share of 4.0p (2008: 9.6p).

• Operating loss of £0.33m (2008: £1.75m profit).

• Basic loss per share of 2.7p (2008: 4.2p earnings).

• Net debt reduced by £0.7m to £9.96m. 

• Proposed final dividend of 0.2p per share (2008: 0.2p) making total dividend for the year of 0.4p (2008: 1.4p).

*Before amortisation of acquisition-related intangibles, exceptional costs, impairment of goodwill and share-based payment charges.

Highlights - Operational

• Further increase in recurring revenues, now representing 55% of total revenues (2008: 49%).

• Annualised reduction in cost base of approximately 10% implemented during year.

• 26 new customers during year including Kurt Geiger, Boot Tree and Transair.

• Major contracts from existing customers including Wilkinson, Wyevale Garden Centres and Lakeland.

• Multi-channel retail business has developed and introduced "Business Assurance Services" targeting Payment Card Industry compliance and anti-fraud products and services.

• The Manufacturing business has developed a suite of products and services which are marketed under the "Factory Automation" banner.  

Commenting on the results, Chairman, Christopher Winn, said: 

"Trading conditions in 2009 were undoubtedly difficult, particularly during the first half of the financial year. However whilst we reduced our cost base and improved efficiencies, we continued to develop both our sales effort and our portfolio of products and services for our clients. Supported by a noticeable upturn in business activity and order intake, these efforts produced a marked and welcome increase in profit in the second half." 

On current trading and prospects, Mr. Winn, added:

"Our outlook remains cautious, but we believe that the Group's significant presence in its core markets, together with the increasing sales and marketing momentum and further development of new products and services, places the Group in a good position to weather the economic storm and to prosper as market conditions stabilise and improve."

Enquiries:   

Christopher Winn, Chairman                                      Telephone: [phone]

Adrian Frost, Finance Director                                   Telephone: [phone]

Paul Vann, Winningtons Financial                            Telephone: [phone]

Mark Taylor, Charles Stanley Securities

(Nominated Advisor)                                                    Telephone: [phone]

SANDERSON GROUP PLC

Preliminary Results for the year ended 30 September 2009

CHAIRMAN'S STATEMENT

Introduction

The results for the year to 30 September 2009, show revenues of £24.90m (2008: £27.55m). Operating profit, before the amortisation of acquisition-related intangibles, exceptional costs impairment of goodwill and before the charge in respect of share-based payments, amounted to £2.76m (2008: £4.07m).

The Group's trading performance has been affected by challenging market conditions resulting from the general economic recession, particularly during the first half of the financial year.  However efficiency measures and cost savings implemented towards the end of the first half, combined with a noticeable upturn in the level of business activity in the late summer (in stark contrast to the upheaval in the financial markets at the end of the prior financial year), have resulted in a marked and welcome increase in profit in the second half of the year compared with the first half.  The improved levels of business activity and increased sales order intake have continued into the current financial year, albeit underlying economic conditions undoubtedly remain challenging.

The Group has reported a number of non-cash charges in the period, resulting in an after tax loss of £1.18m (2008: profit of £1.84m). In addition to the annual amortisation charge of £1.38m in respect of acquisition-related intangibles, an impairment charge of £1.50m against the value of goodwill attributable to the manufacturing division has been recognised in the income statement. This charge arises from the reduced levels of profitability being reported by the business. A further one-off charge of £0.56m in respect of a movement in the fair value of the Group's interest rate hedging arrangement, arising from the reduction in base rates to an historic low, is included in finance expenses.

As previously reported, the Group signed a new term debt facility agreement in July 2009.  This agreement extends the period over which bank debt is being repaid, to June 2014.

Business Review

Sanderson provides a wide range of software solutions to the multi-channel retail and manufacturing markets. These solutions comprise primarily the Group's proprietary software often integrated with other market-leading products, which are installed, supported and serviced by Sanderson staff.

The Group has a proven business model which generates a significant proportion of revenue from annual software licences, managed services and support services.  These recurring revenues amounted to £13.56m of revenue in the year to 30 September 2009, representing 55% of total revenue (2008: £13.45m, 49% of revenue).  Building the aggregate value of recurring revenues remains a key Group objective. 

The recession in the UK economy has resulted in both existing, as well as, prospective customers reducing or postponing capital investment decisions. Discretionary expenditure by existing customers has been focused on either enhancing the performance of their current IT systems in order to deliver tangible business benefits through cost savings and increased efficiencies, or upon items of essential spend such as the need to ensure legislative or regulatory compliance. The Group is well placed to assist its customers with these requirements. Additional new products and services have been developed and introduced in order to maximise these opportunities.

The Group has continued to win new customers, against a backdrop of low levels of business confidence where there were fewer large new opportunities during the year. However, towards the end of the summer, there was an improvement in the level of sales activity, both in terms of the number and value of new orders being received, as well as in the general level of activity from prospective new customers. This upturn, albeit fragile, has continued into the current financial year.

Sales and marketing efforts have been increased, focusing on existing customer account management whilst continuing to compete and to win new customers. A suite of products and services is being developed and marketed under the 'Factory Automation' banner by the manufacturing business and a number of early successes have been achieved.  Similarly, the multi-channel retail business has developed and introduced 'Business Assurance Services' based around managed services, payment card industry (PCI) compliance and anti-fraud products and services.  The Group is also developing further products and services during the current financial year , strengthening our competitive position in target markets.

During the first half year, prior to 31 March 2009, an efficiency and cost reduction programme was implemented and this resulted in an annualised reduction in the cost base of approximately 10%.

Review of multi-channel retail

The Group provides end-to-end and comprehensive solutions to businesses operating in retail, mail order, fulfilment and wholesale distribution, and, increasingly, to those with an online sales presence. Revenues derived from multi-channel retail operations were £19.16m (2008: £21.06m).  Activity levels from the larger existing retail customers have been high, especially in the areas of fraud prevention and PCI compliance.  The lower end of the retail sector, including charities, has been less active but at the end of the financial year a large number of smaller orders were received.

A total of 23 new customers were gained during the year including Kurt Geiger, Boot Tree and Transair. Large projects were gained from a number of existing clients, including Wilkinson, Wyevale Garden Centres and Lakeland.

The current year has started well with a number of new customer contracts having already been gained.

Review of manufacturing

The Group's manufacturing business covers the provision of solutions to manufacturers who operate primarily in the engineering, plastics, electronics, furniture, aerospace, print and food process sectors. The engineering and print sectors of manufacturing have experienced very tough market conditions during the current recession. The Group's food and process business had a disappointing start to the current year up to February, when sales activity increased markedly.  This improved level of activity was sustained throughout the period and has continued into the new financial year.

Three new customers were gained in the year compared with five in the previous year. The Factory Automation suite of products and services places the Group's manufacturing business in a better position to benefit from any improvement in the economy.  Within the manufacturing business, another successful year for the growing food and process unit is anticipated.

Annual pre-contracted recurring revenues now account for 66% of total sales. Gross margin generated from this revenue stream covers approximately 81% of the operating expenses of the division.

Balance sheet

The Group continues to focus on reducing debt levels. Net debt at 30 September 2009 had reduced by £700,000 when compared with the position at the end of the previous financial year. Term debt has been reduced from £11.7m to £9.6m at 30 September 2009. Notably, the Group's banking facility was renegotiated in July with capital repayments realigned with the current levels of trading and cash generation. This has enabled the Group's working capital position to be normalised as well as providing sufficient headroom for further investment in the business and a return to the Board's progressive dividend policy as trading conditions improve. Notwithstanding this fact, the ongoing reduction of debt levels remains a key focus of the Group.

Development costs associated with the new product initiatives referred to earlier in this statement have been capitalised, though our prudent approach to such costs has resulted in the overall value of development costs carried on the balance sheet continuing to fall.

Dividend

As noted above, the Board continues to seek to prioritise further reductions in debt levels. Subject to approval at the Annual General Meeting of shareholders, expected to be held on 11 March 2010, a final dividend of 0.2 pence per ordinary share is proposed and will be paid on 26 March 2010 to shareholders on the register at the close of business on 26 February 2010.

Strategy

We believe that our focus on core markets and the continuing development of solutions relevant to customers operating in these markets will deliver improved financial performance and enhanced shareholder value.  A key short-term goal includes the reduction in debt levels as quickly as trading conditions allow.

Staff

The Group continue to employ staff with high levels of specialist market and technical knowledge, who are committed to delivering quality solutions to our customers.  I would like to thank all of my colleagues for their continued dedication in working with customers and partners, to deliver a high level of service against the background of challenging economic conditions.  

Outlook

The financial year ended 30 September 2009, has been a difficult trading year against the backdrop of a continuing economic recession in the UK economy. The first half year to 31 March 2009 was particularly tough, with diminishing levels of economic activity affecting the Group's customers and prospective customers.  However, whilst we reduced our cost base, we still continued to develop both our sales effort as well as our portfolio of products and services to our clients.

The improvement in the level of business activity experienced in the late summer, together with the anticipated slow recovery from the economic recession provides some encouragement at the start of the new financial year. Our outlook remains cautious, but we believe that the Group's significant presence in its core markets, together with the increasing sales and marketing momentum and further development of new products and services, places the Group in a good position to weather the economic storm and to prosper as market conditions stabilise and improve.

Christopher Winn
Chairman

7 December 2009

Consolidated income statement

for the year ended 30 September 2009

		Note	Before amortisation and impairment of intangible assets	Amortisation and impairment of intangible assets	Total 2009	Total 2008
			£000	£000	£000	£000
	Revenue	3	24,896	-	24,896	27,554
	Cost of sales		(6,868)	-	(6,868)	(8,007)
	Gross profit		18,028	-	18,028	19,547
	Technical and development costs		(8,789)	-	(8,789)	(9,441)
	Administrative and establishment expenses		(4,395)	(2,880)	(7,275)	(6,054)
	Sales and marketing costs		(2,297)	-	(2,297)	(2,300)
	Results from operating activities		2,547	(2,880)	(333)	1,752
	Results from operating activities before adjustments in respect of the following:		2,763	-	2,763	4,070
	Amortisation of acquisition-related intangibles		-	(1,381)	(1,381)	(1,381)
	Exceptional costs	2	(190)	-	(190)	-
	Impairment of goodwill		-	(1,499)	(1,499)	(889)
	Share-based payment charges		(26)	-	(26)	(48)
	Results from operating activities	3	2,547	(2,880)	(333)	1,752
	Finance income		405	-	405	492
	Finance expenses		(1,537)	-	(1,537)	(1,415)
	Movement in fair value of derivative financial instrument		(561)	-	(561)	72
	Profit / (loss) before tax		854	(2,880)	(2,026)	901
	Taxation	4	841	-	841	942
	Profit / (loss) for the year attributable to equity holders of the parent		1,695	(2,880)	(1,185)	1,843
	(Loss) / earnings per share From continuing operations
	Basic (loss) / earnings per share	5			(2.7)p	4.2p
	Diluted earnings per share	5			(2.7)p	4.1p

Consolidated balance sheet

at 30 September 2009

			2009	2008
			£000	Restated                 £000
Non-current assets
Property, plant and equipment			491	602
Intangible assets			34,340	37,236
Pension and other employee obligations			-	170
Deferred tax assets			1,874	1,046
			36,705	39,054
Current assets
Inventories			361	397
Trade and other receivables			6,171	6,920
Income tax receivable Derivative financial instrument			506 -	1,012 72
Cash and cash equivalents			-	1,060
			7,038	9,461
Current liabilities
Bank loans and borrowings			(1,672)	(2,170)
Trade and other payables			(3,697)	(4,565)
Derivative financial instrument			(489)	-
Deferred income			(6,676)	(7,236)
			(12,534)	(13,971)
Net current liabilities			(5,496)	(4,510)
Total assets less current liabilities			31,209	34,544
Non-current liabilities
Loans and borrowings			(8,286)	(9,554)
Pension and other employee obligations			(1,835)	-
Deferred income			(234)	(702)
Deferred tax liabilities			(1,178)	(1,665)
			(11,533)	(11,921)
Net assets			19,676	22,623

Equity attributable to equity holders of the Company
Share capital			4,338	4,338
Share premium			15,178	15,178
Retained earnings			160	3,107
Total equity			19,676	22,623

Consolidated cash flow statement

for the year ended 30 September 2009

		2009	2008
		£000	£000
Cash flows from operating activities
Result for the period		(1,185)	1,843
Adjustments for:
Amortisation and impairment of intangible assets		2,988	2,425
Depreciation		240	267
Share-based payment expense		26	48
Net finance expense		1,693	851
Income tax		(841)	(942)
Operating cash flow before changes in working capital and provisions		2,921	4,492
Movement in trade and other receivables		762	1,287
Movement in inventories		36	(5)
Movement in trade and other payables		(1,611)	(685)
Payments to employee benefit plan		(234)	(234)
Cash generated from operations		1,874	4,855
Interest paid		(1,372)	(605)
Income tax paid		653	(1,139)
Net cash flow from operating activities		1,155	3,111
Cash flow from investing activities
Purchase of plant and equipment		(129)	(247)
Development expenditure capitalised		(92)	(50)
Acquisition of subsidiary, net of cash balances acquired		-	(500)
Net cash flow from investing activities		(221)	(797)
Cash flow from financing activities
Proceeds from bank borrowing, net of arrangement costs		-	-
Repayment of bank borrowing		(2,200)	(975)
Repayment of finance lease principal		(21)	(22)
Equity dividends paid		(174)	(1,192)
Net cash flow from financing activities		(2,395)	(2,189)
Net (decrease) / increase in cash and cash equivalents		(1,461)	125
Cash and cash equivalents at beginning of year		1,060	935
Cash and cash equivalents at the end of the year		(401)	1,060

Notes

1    Financial statements and basis of preparation

The financial information in this statement is not audited and does not constitute statutory accounts within the meaning of section

435 of the Companies Act 2006.  The financial statements for the year to 30 September 2009 have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. Full accounts for Sanderson Group plc for the year ended 30 September 2008, prepared under IFRS, have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under Section 237(2) or Section 237(3) of the Companies Act 1985. These unaudited preliminary results were approved by the Board on 4 December 2009.

Prior year reserves have been restated as a result of an error uncovered during a change in internal procedures relating to the calculation of deferred income. The effect of the error had resulted in an overstatement of revenue in the periods 2004 to 2007. The net effect of the adjustment has been to reduce accumulated retained earnings at 30 September 2007 by £515,000. There has been no effect on the income statement reported in either 2009 or 2008.

2    Exceptional costs

Exceptional costs charged to the operating result in 2009 represent the cost of effecting a cost reduction programme during the year.

3    Segmental reporting

The Group is managed as two separate divisions, providing IT solutions and associated services to the manufacturing and multi-channel retail sectors. Substantially all revenue is generated within the UK.

	Manufacturing		Multi-Channel			Total
	2009 £000	2008 £000	2009 £000	2008 £000	2009 £000		2008 £000
Revenue	5,733	6,489	19,163	21,065	24,896		27,554
Operating profit before amortisation, impairment  and share-based payment charges	758	1,255	2,005	2,815	2,763		4,070
Amortisation of acquisition-related intangibles	-	-	(1,381)	(1,381)	(1,381)		(1,381)
Impairment of goodwill	(1,499)	-	-	(889)	(1,499)		(889)
Exceptional costs	(44)	-	(146)	-	(190)		-
Share-based payment charges					(26)		(48)
Operating (loss) / profit					(333)		1,752
Net finance expense					(1,693)		(851)
(Loss) / profit before taxation					(2,026)		901
Property, plant and equipment	158	256	333	346	491		602
Intangible assets	11,051	12,550	23,289	24,686	34,340		37,236
Inventory	37	48	324	349	361		397
Trade and other receivables	1,263	1,354	4,908	5,566	6,171		6,920
Cash and cash equivalents	(493)	-	92	-	(401)		-
Trade and other payables	(659)	-	(3,038)	-	(3,697)		-
Deferred income	(2,059)	-	(4,851)	-	(6,910)		-
	9,298	14,208	21,057	30,947	30,355		45,155
Other unallocated assets and liabilities					(10,679)		(22,532)
Net assets					19,676		22,623

Subsequent to the 2008 year end the Group undertook a restructuring whereby certain legal entities within the Group transferred trades to fellow subsidiary undertakings. This has enabled additional segmental disclosure of certain assets and liabilities at 30 September 2009, comparative figures for which were not available due to the sharing of certain functions such as cash management and procurement within one legal entity in prior periods.

4    Taxation

	2009 £000	2008 £000
Current tax expense
UK corporation tax for the current year	-	299
Relating to prior periods	(146)	(573)
Total current tax	(146)	(274)
Deferred tax
Deferred tax for the current year	(692)	(480)
Relating to prior periods	(3)	(100)
Relating to change in rate of tax	-	(88)
Total deferred tax	(695)	(668)
Taxation credited to the income statement	(841)	(942)

Reconciliation of effective tax rate

The current consolidated tax charge for the period is lower (2008: lower) than the standard rate of corporation tax in the UK of 28%.

The differences are explained below.

	2009	2008
	£000	£000
(Loss) / profit before tax:
Continuing operations	(2,026)	901

Tax using the UK Corporation tax rate of 28% (2008: 29%)	(567)	261
Effects of:
Expenses not deductible for tax purposes	497	312
Expenses not reported in income statement	-	231
Utilisation of losses not previously recognised	(822)	(428)
Recognition of loss utilisation anticipated in future periods	-	(633)
Over provision in previous years	(148)	(673)
Losses not utilised in year	202	5
Change in temporary differences	(3)	(17)
Total tax in income statement	(841)	(942)

The overprovision for income tax in previous years has arisen as a result of the utilisation of brought forward tax losses not previously

recognised as an asset due to uncertainties over their availability and the timing of their recovery.

The following deferred tax asset has not been recognised, as its future economic benefit is uncertain:

		2009	2008
		£000	£000
Tax losses, not recognised as future economic benefit is uncertain		2,340	2,372

5    Earnings per share

Basic and diluted earnings per share are calculated by dividing the loss or profit after tax for the year by the weighted average number of ordinary shares and the diluted weighted average number of ordinary shares at the end of the year respectively. In order to better demonstrate the performance of the Group, an adjusted earnings per share calculation has been presented below which adds back items typically adjusted for by users of the accounts. The calculations for earnings and the number of shares relevant to all of the measures of earnings per share described in the foregoing are set out below.

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings:	2009	2008
	£000	£000
Result for the year from continuing operations	(1,185)	1,843
Amortisation of acquisition-related intangible assets	1,381	1,381
Impairment charge	1,499	889
Share-based payment charges	26	48
Adjusted profit from continuing operations for the year	1,721	4,161

Number of shares:	2009	2008
	No.	No.
In issue at the start of the year	43,383,946	42,281,744
Effect of shares issued in the year	-	1,102,202
Weighted average number of shares at year-end	43,383,946	43,383,946
Effect of share options	1,780,258	1,836,427
Weighted average number of shares (diluted) at year-end	45,164,204	45,220,373

	2009 (pence)	2008 (pence)
(Loss) /earnings per share:
Basic	(2.7)	4.2
Diluted	(2.7)	4.1
Adjusted earnings per share:
Basic	4.0	9.6
Diluted	3.8	9.2

There is no dilution to the basic loss per share in 2009 owing to a loss for the year being reported.

6    Annual Report and Accounts

Copies of the Annual Report and Accounts will be posted to shareholders in due course at which time the Annual Report and Accounts will be made available to download on the Group's website www.sanderson.com.

 

END

 

 

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