Corporate Industries

Annual Report 2009


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Preliminary Results for the year ended 31 December 2009

  • Strong performance in challenging conditions
  • Sales reduced by 3% to £31.8m (2008: £32.9m)
         - good growth in newer market sectors, including medical and dental
  • Recurring income (from annual software maintenance and support) up 10% to £10.7m
        (2008: £9.7m)

         - represents 34% of Group sales
         - offers visibility on earnings
  • Decision to maintain high level of R&D and marketing spend in recession - to build      commercial advantage
          - invested £9.2m in R&D (2008: £8.8m)
          - globally ranked No.3 in independent survey of NC software and services developers*
           (2008: ranked No. 4)
  • Profit before tax of £1.1m (2008: £2.3m)
          - reduction in part reflects operational gearing
  • Earnings per share of 11.4p (2008: 21.2p)
  • Net cash of £5.7m (2008: £6.4m)
  • Final dividend of 3.9p proposed (2008: 3.9p), taking total dividend to 5.25p
         (2008: 5.25p)
  • Group well-positioned for recovery, supported by strong balance sheet, wide product      offering and broad geographic reach
  • Positive outlook
          - expected improvement in profitability in current financial year

(*industry survey conducted by independent global consulting analysts, CIMdata)

Chairman’s Statement

Introduction

I am pleased to report that Delcam has performed strongly in the face of challenging trading conditions over the year to 31 December 2009.

Sales at £31.8 million were slightly down year on year but still stand close to the record high achieved last year and are 7% higher than in 2007. This creditable result supports our decision to continue to invest significantly in the business and reflects good growth in our newer market sectors and territories.

In 2009, as the global economic downturn became evident, we stated that given Delcam’s strong financial position and very high levels of recurring income, we believed that the Company was well-placed to build commercial advantage in the recession by maintaining rather than reducing its high level of investment in product development and marketing. Our R&D and marketing expenditure over the period therefore matched last year’s level. This investment strategy helped to move us up the global ranking of developers of NC software and services (by revenue) to third place in 2009, from fourth place in 2008 (as shown in the highly-regarded industry survey conducted by independent global consulting analysts, CIMdata).

Reflecting the Board’s decision to maintain high levels of investment in R&D, the Group’s profitability has decreased this year. The reduction was in line with expectations and we anticipate profitability moving higher in the current financial year. The Board recommends the payment of a final dividend to shareholders at the same level as last year.

Financial Highlights

Sales for the year to 31 December 2009 decreased by 3% to £31.8 million, from £32.9 million in 2008. Recurring income from annual software maintenance revenues contributed £10.7m to this result and showed a year on year increase of 10%. Accounting for 34% of the Group’s sales, this income stream represents high quality, predictable revenue.

In line with our strategy, the Group continued its investment in R&D, which over the year totalled £9.2 million (2008: £8.8 million). As well as introducing new software products, we released improved versions of all of our software products during the year.

Given the operationally-geared nature of the business, profitability declined following the 3% reduction in sales. Pre-tax profits stood at £1.1 million compared with £2.3 million in 2008. Basic earnings per share reduced to 11.4p from 21.2p last year.

The IAS 19 valuation of the Group’s defined benefit pension scheme recorded a charge to reserves of £1.7 million resulting in a deficit of £2.8 million at the year end. The balance sheet remains strong, with net cash at 31 December 2009 at £5.7 million (2008: £6.4 million).

Dividend

The Board proposes a final dividend of 3.9p per ordinary share (2008: 3.9p).  This makes a total for the year of 5.25p per share (2008: 5.25p), so maintaining the dividend paid last year.  The final dividend will be paid on 14 May 2010 to shareholders on the Register as at 30 April 2010 (the ex-dividend date being 28 April 2010).

Review

The trading environment over the year was extremely challenging and the downturn across many areas of manufacturing was more severe and is likely to be more prolonged than we initially anticipated in 2008. In this context, we view our sales result for the year as creditable.

We have continued our growth in a number of newer market sectors, especially the medical and dental industries, and we continue to see potential for further expansion in these areas. During the year, we formed a dedicated Healthcare Division to provide a greater focus on this increasingly important part of our business.

Despite the effects of the recession in Europe, our German subsidiary again achieved excellent results. The impact of the global downturn affected our business in North America. In September, we reinforced our distribution network with the acquisition of our reseller based in California and by the establishment of a branch office in Poland. Our sales continued to grow in our newer markets of China and India. We now have strong networks of experienced staff across both of these countries and believe that we are well placed to see further growth as the global economy recovers.

The growth in maintenance revenues, which increased by 10% over last year, is pleasing. Maintenance revenues are recurring earnings which contribute an increasing percentage of our business. Their continued growth in the current economic environment provides clear evidence of the high value our customers place on the level of service we provide and the enhancements we introduce regularly to our products. We continue to believe that our policy of significant investment in research and development will ensure higher sales of this type over the longer term.

Our Professional Services Group continued its international expansion, with the successful promotion of its consultancy expertise from our offices in France, Singapore and the USA, as well as in the UK. The major customers continue to be from the aerospace sector. Our Tooling Services Division was further expanded with the addition of a large five-axis machine tool during 2009.

Outlook

Uncertainty over the timing and strength of the recovery in the global economy continues to make it more difficult than usual to forecast accurately. However, the continued growth of recurring revenues, from annual software maintenance and support income, and the increase in new software sales in the later part of 2009 give us cause for confidence.

Our policy of offering a wider range of products and services across a broader number of industries, together with our strong balance sheet, puts us in a better position than many of our competitors.

We continue to view prospects for the business over the long term very positively.

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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