Annual Report 2008


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Preliminary Results for the year ended 31 December 2008

 

2008

2007

Sales

£32.9m

£29.7m

+10.7%

Pre-tax profit

£2.3m

£2.1m

+5.2%

Total dividend for year

5.25p

5.25p

+0.0%

 

  • Creditable performance over the year despite deteriorating trading conditions, reflecting:
  -   quality of software offering
  -   broad geographical distribution and presence across a wide variety of industries
 
  • Sales of £32.9 million (2007: £29.7 million)
  -   European subsidiaries performed particularly well, especially the German subsidiary
  -   emerging economies of China, India and Latin America achieved good growth
 
  • Maintenance revenues from software licence renewals increased by 20% to £9.7 million (2007: £8.1 million)
  -   represents 29% of Group revenues
  -   highly predictable, recurring income
 
  • Profit before tax of £2.3 million (2007: £2.1 million)
 
  • Basic earnings per share of 21.2p (2007: 24.6p)
 
  • R&D investment of £8.8 million (2007: £7.8 million)
  -   released improved versions of existing products
  -   introduced new products during the period
   
  • Net cash of £6.4 million as at 31 December 2008 (2007: £5.3 million)
   
  • Proposed final dividend of 3.9p, making a total for the year of 5.25p (2007: 5.25p)
   
  • Board considers Delcam to be well placed to weather the downturn
   

Peter Miles, Chairman, commented,

“The robust results achieved by the Group over the past financial year reflect the high quality software products that we continue to offer and the benefits of our diversified business, both in terms of our geographic reach and the many industries that we serve.

The next two years are going to be difficult but also an opportunity. The favourable exchange rate, strong cash position and high levels of predictable income present Delcam with a significant opportunity to increase our market share. During 2009, we plan to maintain our investment in product development and marketing, while continuing to exercise tight control over our day-to-day expenditure to take advantage of the recovery when it comes.

We remain confident that our strategy will deliver business advantage and believe that Delcam is well placed to see out the near term challenges.”


STATEMENT BY THE CHAIRMAN, PETER MILES

 

Introduction

I am pleased to report very robust results in a year which saw trading conditions deteriorate significantly, reflecting the global economic and financial downturn. These results reflect the high quality of our software offering and the diversified spread of our business, both in terms of our geographic reach and the many industries that we serve.

Group sales for the financial year to 31 December 2008 recorded a new high. This increase was achieved partly as a result of further improvements in our recent acquisitions, the FeatureCAM, PartMaker and Crispin families of software, partly through the introduction of new software programs, and partly through further organic growth of longstanding Delcam products. While pre-tax profit increased by a smaller percentage, in a difficult year, we consider the increase to be satisfactory. 

Given the tougher economic environment, it is worth highlighting in our results, the high levels of recurring revenues the business generates through software maintenance income renewals.

While the outlook for the business in 2009 is challenging, we consider that Delcam is well placed to weather the downturn.

Financial Highlights

Group sales for the year to 31 December 2008 rose by 11% to £32.9 million from £29.7 million in 2007.  As previously stated, the global slowdown in the latter months of the year impacted profitability.  Profit before tax was £2.3 million, including net currency gains of £0.4 million, compared with £2.1 million in 2007, representing an increase of 5%.  Basic earnings per share were 21.2p from 24.6p last year.  Maintenance revenues increased by 20% to £9.7 million from £8.1m last year and now represent 29% of Group revenues. Our maintenance revenues represent high quality, recurring earnings and provide us with good earnings visibility looking forward. 

We remain convinced that high levels of investment in ongoing research and development are essential both to ensure that our software offerings remain market-leading within our chosen sectors and to enable the introduction of additional products.  As our product range grows, this level of investment becomes even more important.  Over the year, R&D investment totalled £8.8 million (2007: £7.8 million).  We released improved versions of all of our main software products during the period, as well as introducing new products.  The value our customers place in these enhancements is reflected in the continued growth in income from maintenance contracts.

The Group remains cash generative with an increase in net cash from £5.3 million to £6.4 million.

In 2007, the IAS 19 valuation of the Delcam Retirement Benefits Scheme, the Group’s defined benefit pension scheme, recorded a surplus of £1.7 million. This surplus was not recognised in the 2007 accounts but the equivalent valuation for 2008, of a deficit of £1.1 million, has been recognised as a liability at the year end.

The Group’s strong balance sheet gives it the flexibility, particularly in the current economic climate, to pursue opportunities which may arise to acquire complementary businesses or products. 

Dividend

The Board is pleased to propose a final dividend of 3.9p per ordinary share (2007 – 4.0p).  This makes a total for the year of 5.25p per share (2007 – 5.25p), maintaining the dividend at the same overall level as last year.  The final dividend will be paid on 15 May 2009 to shareholders on the register as at 14 April 2009. The ex-dividend date is 8 April 2009.

Review

The Group made good progress over the year. We further increased the sales of our core CADCAM products, expanded the international distribution of the additional software ranges acquired during 2005 and 2006, and introduced a number of new products.  Our progress in such difficult times is a strong validation of the diversification policies which have been followed by the Group for a number of years, in particular in reducing our previous dependence on the automotive industry.  We have successfully entered a number of new sectors, where we see potential for further expansion.

The most impressive growth continued to be among our European subsidiaries in France, Germany and Italy.  Sales in Germany grew especially strongly, giving our German subsidiary the highest sales of any of our international network of sales partners.  In North America, the impact of the poor economy was felt most severely, although this was offset to a certain extent by the strengthening of the US dollar against sterling.  Other areas where we did well included the emerging economies of China, India and Latin America.

We continue to extend the international distribution of the software products we acquired with our acquisitions of FeatureCAM and PartMaker and increased training of both our sales and marketing staff.  Together with our more established PowerMILL and ArtCAM products, we offer a broader range of machining software than any other supplier.  This is a key factor in Delcam continuing to be ranked as the world’s leading specialist supplier of CAM software in the rankings published by the American analyst CIMdata.

Our Crispin range of software for the footwear industry has been expanded with the addition of new dedicated programs for the design and manufacture of orthopaedic footwear.  These have been received well by customers and should help reinforce our position as the main supplier of CADCAM software to the industry.

Another relatively new area that continues to show strong growth is the dental industry.  We have been able to apply our broad design and manufacturing expertise to develop products that are becoming increasingly successful in this application.

We have expanded our Professional Services Group (PSG) in line with increasing demand for its consultancy expertise. Our major customers continue to be aerospace engine manufacturers and companies that machine aerostructures.  Both of these are looking for efficiency savings by introducing new methods of manufacture.  It is also pleasing to see that the Group is gaining new business in the power generation sector.  We have established a new office in Singapore to follow up consultancy opportunities in Asia.  The manufacturing process development work of PSG often leads to complementary opportunities for our Tooling Services Division to provide pilot production capacity to customers within Delcam’s extensive multiaxis machining facility. Plans are under way to further expand this facility with the addition of another large machine tool during 2009.

Outlook

Our intention is to expand sales in our newer areas of activity, including Services and Healthcare, whilst also remaining the largest specialist supplier of software for computer controlled machines in the manufacturing industry.  As the largest supplier, we will inevitably be affected by the downturn in manufacturing sales and reduced levels of confidence which are affecting investment. It remains difficult to predict the course of the recession but we are planning for a recovery in manufacturing to begin during 2010, with growth resuming in 2011. 

The next two years are going to be difficult but also an opportunity.  The favourable exchange rate, strong cash position and high levels of predictable income present Delcam with a significant opportunity to increase its market share.  During 2009, we plan to maintain our investment in product development and marketing, while continuing to exercise tight control over our day-to-day expenditure to take advantage of the recovery when it comes. 

We remain confident that our strategy will deliver business advantage and believe that Delcam is well placed to see out the near term challenges.

I would like to thank all our staff worldwide for their loyalty, hard work and dedication during the year.

PETER MILES

Chairman


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