BRADY PLC
FINAL RESULTS
For Release 20 March 2007
Brady plc ('the Group'), the leading supplier of software solutions for global
commodity trading, announces its results for the twelve months to 31 December
2006.
HIGHLIGHTS
Trading performance:
Turnover up 91% to £4,635,865 (2005: £2,431,609)
Profit before tax £805,239 (2005 restated: loss before tax £1,080,646)
Cash inflow from operations was £865,698(2005: outflow of £678,930)
Cash balance £4,917,000 (2005: £3,604,744)
Maiden dividend of 1p per share
Operations
Nine contract wins for Trinity v600 from March 2006 to January 2007
Trading products are now used on six continents
Outlook
Group has announced its intention to expand international sales and service
operations
Group is in active discussions with further prospective customers
Graham Simister, Chairman of Brady, said:
Brady plc made pretax profit in 2006 and signed sufficient contracts in the
year for the Board to be optimistic for the outcome in 2007. The Group signed
up a number of very well known new clients in 2006 and hopes to do so again in
2007. The Group is experiencing strong market 'pull' into international service
operations, and on 10 January 2007 appointed Peter Harverson as non-executive
director and consultant to the Group, with a specific remit to assist the
planning, execution and control of the growth of the Group's international
sales and distribution operations. This is the first step in a process of
strengthening the Board to further the Group's continuing development. I
believe our recommendation of commencement of dividends reflects our confidence
in our short and medium term future.
Copies of the annual report and accounts will be posted to the shareholders
shortly and will be available on the company's website www.bradyplc.com
For further information please contact:
Graham Simister, Chairman 01223 479479
Robert Brady, CEO 01223 479479
END
FINAL RESULTS FOR THE 12 MONTHS TO 31 DECEMBER 2006
CHAIRMAN'S STATEMENT
Brady plc made pretax profit of £805,239 in 2006 (2005: pretax loss £1,080,646)
and signed sufficient contracts in the year for the Board to be optimistic for
the outcome in 2007. Further information regarding the value of contracts
signed in 2006 and of maintenance and other revenue which supports the Board's
expectations are detailed elsewhere in this report. The number and timing of
2007 contract closings and implementation and revenue recognition schedules are
inherently difficult to forecast but with the current level of signed contracts
the Board is now focussing on laying the foundations to underpin growth in 2007
and 2008.
In 2005 delays were experienced in the release of the current version of the
Trinity system and this was reflected in a loss that year, but the new system
is now in live operation and the Board does not anticipate similar issues to be
experienced in the foreseeable future. Cash balances rose from £3,604,744 at
the 2005 year end to £4,917,000 at the 2006 year end continuing to rise to £
5,549,767 on 31 January 2007. The Group has already signed further contracts in
2007 as announced in January and is confident that further opportunities will
continue to be available for further sales in 2007 and beyond.
The Group continues to focus a broad range of product applications on a
specific target market in which many software applications fail to address the
specific needs of a highly specialised marketplace. This high value-added
approach allows clients to purchase a service from the Group not readily
available from other suppliers. The Group continues to develop ever more
specialised capabilities by working closely with its clients on projects
tailored to their specific needs. By working with many of the top users in this
area the Group has been able to substantially improve both its Trinity and
Opval products and still generate appropriate retained earnings. The Group's
specialist metals trading products are now used on six continents. Having
upgraded and implemented new platforms for both Opval and Trinity the Board
does not anticipate an imminent need for fundamental redesign of either
product, though they will both be continuously improved. The Board has declared
a maiden dividend of 1 pence per share as the business is expected to remain
cash flow positive for some time. Initially dividends are expected to be on a
modest basis as the Group aims to retain sufficient cash to be seen as a stable
supplier of what is often a mission-critical system.
Brady plc intends to continue to improve its sales structure, building upon
improvements already made. The Group signed up a number of very well known new
clients in 2006 and hopes to do so again in 2007. Peter Harverson's recruitment
as a non-executive should help to increase this focus on sales both in this
role and as a consultant. Dan McEvoy, who was employed in early 2005 met with
considerable sales success in 2006, by far our best year ever for new clients;
he was appointed head of sales during the year. We plan to further recruit in
sales in 2007. This will initially raise our fixed costs, but we believe it is
firmly in the shareholders' interests to do so.
The Board also believes that it should further strengthen its finance and
general management structure. We anticipate the appointment of a new FD shortly
to implement this structure. Recruiting new management with experience in
businesses substantially larger than Brady's will allow room for the Group to
grow in scale rather more quickly than with the current structure and we intend
to work towards appointing additional senior directors to this end. David Rowe
will retire as a non-executive director at the end of his three year term at
the AGM and I would like to thank him for the exceptional help he has provided
us during his term of office; we anticipate appointing another independent
non-executive director later in the year.
Brady plc is a well-financed Group with rising numbers of new clients. The
Group has begun to take steps to strengthen and deepen its management across
the Board and I believe this gives us the possibility of substantial growth in
the future. Software is an inherently difficult business in which to predict
future sales and there are always risks of delays and technology change but I
believe our recommendation of commencement of dividends reflects our confidence
in our short and medium term future.
Graham Simister
Chairman
20 March 2007
CHIEF EXECUTIVE'S REVIEW
OPERATIONAL REVIEW
Brady plc's mission is to become the leader in the field of metal and commodity
trading solutions. This Operational Review is addressed to customers and
shareholders alike. It is the annual opportunity to review our performance
against key objectives for the year, and to set out our strategy going forward.
Although this review is for 2006, it must begin with the issues the Group faced
in the previous year. In 2005 the Group launched the next major version of its
flagship product, Trinity version 600. This version provides enhanced
functionality and security for the Group's banking and trading customers. It
was designed for quicker on-site implementations, which our research showed was
a key customer demand. And in addition, the new product expanded the Group's
target market by meeting the needs of metal and mining companies. The product
launch was an important technical foundation for our success in 2006. It is now
receiving excellent reviews and recommendations from customers.
In 2006 the Group enjoyed a record year for sales and order fulfilment. The
Group achieved new contract wins for its Trinity product of over £3 million. In
line with our objective of faster implementation, three of the new customers
reached the stage of product acceptance during the year. The other projects
began later in the year and are currently running to time. During the year the
Group also received and delivered three orders for the Opval product for
traders and hedge funds.
Performance
The key performance indicators used by the Board to monitor the financial
performance of the Group include sales bookings, turnover, operating profit and
cash generation. These are closely monitored throughout the year.
Group turnover increased by 91% to £4,635,865 (2005: £2,431,609).
The operating profit for the year was £636,202 (2005: loss of £1,272,822),
This was after charging £91,417 (2005: £45,600) arising from the adoption of
FRS 20 (Share based payments) as set out in Note 18.
Group cash inflow from operations was £865,698 (2005: outflow of £678,930).
Turnover in 2006 included £300,000 in license revenues relating to six Opval
clients and £1.5m relating to eight Trinity clients. The majority of the
revenue from contracts signed in 2006 is due to be recognised in 2007. Average
initial contract size was approximately £80,000 for Opval license agreements
and £400,000 for Trinity sales. This does not include implementation and
development revenues. The Group is focussing sales efforts on Trinity and Opval
sales, primarily to impact 2008 and on further work with existing clients.
Maintenance revenues, which typically recur year on year from completion of
installation amounted to approximately £1.3 million in 2006, and as a result of
the additional licences agreed in the year, the aggregate annual value of
maintenance income from signed licences as at 31 December 2006 amounted to
approximately £1.7 million. The balance of the Group's sales revenue mostly
relates to professional services and development. Timing of license sales are
less predictable than other forms of revenue.
The improvement in financial indicators outlined above reflects the successful
delivery of Trinity version 600, and the increased flow of orders.
In addition, the Group monitors a number of non-financial performance
indicators as set out below, to ensure that the international growth path set
out below remains under control and meets customer expectations.
Ease of Implementation
Whilst the Group's conventional banking customers typically require integration
with in-house systems, our producer, fabricator and trading-house customers
typically have fewer requirements in this area. Our market research shows that
they place a high premium on speed and ease of implementation. Accordingly, the
Group has targeted, as a key performance indicator, the average number of days
required from Brady personnel for a new customer in this sector to achieve
practical acceptance for first go-live. In 2006, this fell significantly and
the Group aims to reduce this further in 2007 and beyond. This will enable the
Group to achieve greater customer satisfaction, and to expand its market to
satisfy a broader range of customers.
Geographical distribution of customers (by time zone)
Although many of the Group's implementations are global in nature, with users
throughout the world connecting to the central system, the centre of activity
and hence central support requirement is usually at the customer head office.
This indicator is an important measure of the improvement in international
sales and services cover. In 2006 there was a greater density of customers in
USA compared to 2005, other territories are set for expansion in 2007.
OUTLOOK
The Group announced on 11 January 2007 that current market expectations for
2007 are underpinned by existing orders. The prospect pipeline remains good.
The first challenge facing the Group in 2007 will be to expand its
international sales operations. Work has already begun. In early 2007 the
company appointed Peter Harverson to the Board, with a specific remit to assist
the planning, execution and control of the growth of the Group's sales
operations under the head of sales, Dan McEvoy. This investment is expected to
yield results in 2008 due to the long sales cycle.
The next challenge will be the Group's geographical footprint for services. The
Group's sales successes show an important pattern. Previously, the practical
focus of operations centred on the London Metal Exchange - although trading was
global, most customers were serviced in London. With the launch of Trinity
version 600, the Group acquired key international metal and mining customers,
as well as precious metal customers headquartered in New York and Japan. This
trend continues: for example, the four contract wins announced in January 2007
were headquartered in the US, Japan, Switzerland and Asia. There is a
corresponding customer demand or 'pull' into international services operations.
In the immediate term this demand is being met by working with major metal and
mining consultancies and through travel; in the longer term the Group will
respond to the market pull by providing local services. In order to seize this
major opportunity, we must become an international sales and service
organisation, with knowledge-based services tightly focused in Cambridge.
Robert Brady
Chief Executive
20 March 2007
CONSOLIDATED PROFIT & LOSS ACCOUNT
For the year ended 31 December 2006
Restated
Note 2006 2005
£ £
Turnover 3 4,635,865 2,431,609
Cost of sales 1,894,111 1,645,059
Gross profit 2,741,754 786,550
Administrative expenses 2,105,552 2,059,372
Operating profit/(loss) 636,202 (1,272,822)
Interest receivable and similar
income 169,037 192,176
Profit/(loss) on ordinary
activities before taxation 805,239 (1,080,646)
Taxation on profit/(loss) on
ordinary activities 4 180,280 (332,412)
Retained profit/(loss) for the year 624,959 (748,234)
Earnings/(loss) per ordinary share
Basic 5 2.4p (2.9)p
Diluted 5 2.4p (2.9)p
CONSOLIDATED BALANCE SHEET
At 31 December 2006
Restated
2006 2005
£ £ £ £
Fixed assets
Intangible assets 811,606 939,248
Tangible assets 138,860 109,237
Investments 15,027 15,027
965,493 1,063,512
Current assets
Debtors 2,400,886 1,289,842
Cash at bank and in hand 4,917,000 3,604,744
7,317,886 4,894,586
Creditors: amounts falling due
(746,767)
within one year (2,298,934)
Net current assets 5,018,952 4,147,819
Total assets less current
liabilities 5,984,445 5,211,331
Provisions for liabilities - (3,262)
5,984,445 5,208,069
Capital and reserves
Called up share capital 262,090 259,692
Share premium account 3,119,500 3,061,898
Merger reserve 680,000 680,000
Capital reserve 1,000 1,000
Equity reserve 161,019 69,602
Profit and loss account 1,760,836 1,135,877
Shareholders' funds 5,984,445 5,208,069
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2006
Note 2006 2005
£ £
Net cash inflow/(outflow) from operating
activities 6 865,698 (678,930)
Returns on investments and servicing of finance
Interest received 169,037 192,176
Net cash inflow from returns on investments and
servicing of finance 169,037 192,176
Taxation 327,321 (391,221)
Capital expenditure and financial investment
Purchase of tangible fixed assets (109,800) (62,081)
Net cash outflow from capital expenditure
and financial investment (109,800) (62,081)
Acquisitions
Acquisition of business - (47,512)
Financing
Issue of ordinary share capital 60,000 41,750
Net cash inflow from financing 60,000 41,750
Increase/(decrease) in cash 7 1,312,256 (945,818)
BASIS OF PREPARATION
1. The financial information set out above in respect of 31 December 2006 does
not constitute statutory accounts as defined in section 240 of the Companies
Act. The financial information contained in this announcement has been
extracted from the 2006 financial statements upon which the auditors opinion is
unqualified and does not include any statement under Section 237 of the
Companies Act 1985.
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention.
The principal accounting policies of the Group are set out in the 2005 annual
report and financial statements. The policies in this preliminary announcement
have remained unchanged from the 2005 financial statements, with the exception
of the policy relating to the treatment of share based payments which has been
changed in accordance with the provisions of FRS 20 as set out in note 2 below.
2. PRIOR YEAR ADJUSTMENT
During the period, the Group adopted FRS 20. Under the new standard, share
options are expensed during the vesting period, and this has resulted in a
restatement of comparative figures. The implementation of FRS 20 has the effect
of reducing profits for the year to 31 December 2006 by £91,417. The equivalent
charge for the year to 31 December 2005 is £45,600. In addition, retained
earnings have been reduced by £24,002 in respect of periods falling before 1
January 2005.
3. Turnover and profit/(loss) on ordinary activities before taxation
Turnover and profit/(loss) before taxation are attributable to the one
principal activity of the Group.
The Group makes sales to a variety of world destinations. An analysis of
turnover by geographical market is given below:
2006 2005
£ £
United Kingdom 2,258,869 1,564,982
Switzerland 445,926 -
Italy 13,261 32,248
Rest of Europe 28,283 136,126
North America 1,762,527 545,993
Asia 62,592 85,032
Australia 51,383 67,228
Rest of World 13,024 -
4,635,865 2,431,609
4. Taxation on profit/(loss) on ordinary activities
The taxation charge/(credit) represents:
2006 Restated 2005
£ £
Corporation tax at 30% (2005: 30%) 310,314 (260,471)
Adjustments in respect of prior periods (126,772) (50,203)
Total current tax 183,542 (310,674)
Deferred taxation:
Reversal of timing differences (3,262) (21,738)
Taxation on profit/(loss) on ordinary activities 180,280 (332,412)
The current tax assessed for the year is lower (2005: lower) than the standard
rate of corporation tax in the UK of 30% (2005: 30%). The differences are
explained as follows:
2006 Restated
2005
£ £
Profit/(loss) on ordinary activities before taxation 805,239 (1,080,646)
Profit/(loss) on ordinary activities multiplied by
standard rate of
corporation tax in the UK of 30% (2005: 30%) 241,572 (324,194)
Effect of:
Expenses not deductible for tax purposes 70,522 52,619
Differences between capital allowances and
depreciation 3,262 10,839
Other timing differences - 265
Utilisation of tax losses (5,042) -
Adjustments to tax charge in respect of prior periods (126,772) (50,203)
Current tax charge/(credit) for period 183,542 (310,674)
5. earnings/(loss) per share
The calculation of the basic earnings/(loss) per share is based on the earnings
/(loss) attributable to ordinary shareholders divided by the weighted average
number of shares in issue during the year.
The calculation of diluted earnings/(loss) per share is based on the basic
earnings/(loss) per share adjusted to allow for the issue of shares on the
assumed conversion of dilutive options. For both basic and adjusted loss per
share in the prior year, the potential ordinary shares are not treated as
dilutive as, under FRS 22, the loss per share is increased.
Reconciliation of the earnings/(loss) and weighted average number of shares
used in the calculations are set out below.
Restated
2006 2005
£ £
Basic and diluted earnings/(loss) per share
Profit/(loss) for the financial year 624,959 (748,234)
Number Number
Weighted average number of ordinary shares in issue
during the year 26,054,202 25,870,841
Basic earnings/(loss) per share (pence) 2.4 (2.9)
Diluted earnings/(loss) per share (pence) 2.4 ( 2.9)
2006 2005
Number Number
Reconciliation of average number of ordinary shares
used for
basic and diluted earnings/(loss) per share
Weighted average number of ordinary shares used for
basic earnings/(loss) per share 26,054,202 25,870,841
Weighted average number of shares under option - 1,313,222
Weighted average number of ordinary shares used for
diluted earnings/(loss) per share 26,054,202 27,184,063
Adjusted basic earnings/(loss) per share and adjusted diluted earnings/(loss)
per share are based on the earnings/(loss) attributable to ordinary
shareholders adjusted for goodwill amortisation. Reconciliation of the
earnings/(loss) used in the calculations is set out below.
Restated
2006 2005
£ £
Adjusted earnings/(loss) per share
Operating profit/(loss) 636,202 (1,272,822)
Goodwill amortisation 127,642 116,118
Adjusted operating profit/(loss) 763,844 (1,156,704)
Net interest 169,037 192,176
Adjusted profit/(loss) on ordinary activities before
taxation 932,881 (964,528)
Taxation on adjusted profit/(loss) on ordinary
activities (180,280) 332,412
Adjusted profit/(loss) for the financial period 752,601 (632,116)
Adjusted basic earnings/(loss) per share (pence) 2.9 (2.4)
Adjusted diluted earnings/(loss) per share (pence) 2.9 (2.4)
6. Net cash inflow/(OUTFLOW) from operating activities
Restated
2006 2005
£ £
Operating profit/(loss) 636,202 (1,272,822)
Depreciation 80,177 81,929
Share option charge 91,417 45,600
Amortisation of goodwill 127,642 116,118
(Increase)/decrease in debtors (1,311,593) 458,059
Increase/(decrease) in creditors 1,241,853 (107,814)
Net cash inflow/(outflow) from operating
activities 865,698 (678,930)
7. Reconciliation of net cash flow to movement in net funds
2006 2005
£ £
Increase/(decrease) in cash in the year 1,312,256 (945,818)
Movement in net funds in the year 1,312,256 (945,818)
Net funds at 1 January 2006 3,604,744 4,550,562
Net funds at 31 December 2006 4,917,000 3,604,744
REPORT AND ACCOUNTS
Copies of the annual report and accounts will be posted to the shareholders
shortly and will be available on the company's website www.bradyplc.com
For further information please contact:
Graham Simister, Chairman 01223 479479
Robert Brady, CEO 01223 479479
Tuesday, March 20, 2007
BRADY PLC - FINAL RESULTS
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