Annual Report 2012
Preliminary Results for the year ended 31 December 2012
|•||Best ever results|
|•||Sales up 12% to £47.1m (2011: £41.9m) – driven by increased software licence sales across all major territories, USA, Far East and Europe|
|•||sales trend shows new highs in each of the last six half year periods|
|•||software licence revenues up 16% to £24.5m|
|•||recurring income (from software maintenance and support contracts) up 8% to £14.1m, accounting for circa 30% of Group sales|
|•||Investment in software R&D of £11.4m (2011: £10.7m) – underpins long term growth|
|•||Pre-tax profit up 54% to £5.1m (2011: £3.3m*)|
|•||Basic earnings per share up 65% to 58.2p (2011: 35.3p*)|
|•||Unrestricted net cash and short-term investments up 8% to £10.3m at year end (2011: £9.5m)|
|•||Final dividend of 7.0p proposed, (2011: 5.25p) – takes total to 9.5p (2011: 7.0p), up 36%|
|•||Highest level of royalties continue to be from USA, Germany, Korea, UK and China|
|•||Increased investment in marketing – to raise worldwide brand profile|
|•||Global sales network strengthened|
|•||Board expects Delcam to make further good progress in 2013|
* 2011 comparatives have been restated to reflect the early adoption of revised IAS 19 standard for pension costs (as detailed in note 4 of the Preliminary Report).
I am pleased to report that the Group has delivered its best ever results in the year to 31 December 2012, with sales 12% higher at £47.1 million and pre-tax profits 54% higher at £5.1 million against the restated figure for 2011. The sales trend is especially encouraging, with Delcam setting new sales records in each of the last six half-year periods.
The Group’s financial position remains strong, with cash generated from operations in 2012 of £7.8 million, up by 32% over the prior year, and unrestricted net cash and short term investments at the year end of £10.3 million, an increase of 8% year-on-year. This strong financial position supports Delcam’s potential for further growth, both in absolute terms and in market share.
Sales for the year to 31 December 2012 increased by 12% to £47.1 million, compared to £41.9 million in 2011. The largest increase came, as expected, from improved sales in software licences across most of our key territories in the USA, the Far East and Europe, with total software licence revenues up 16% to £24.5 million. In addition, revenues derived from software maintenance contracts grew by 8% to £14.1 million against £13.1 million in 2011. Maintenance revenues, which represent a highly predictable, recurring income stream, continue to account for around 30% of Group sales.
Our main markets continue to be the toolmaking industry, in particular within the automotive sector, and production machining companies in the automotive and aerospace industries. Important contributions also came from sales to designers and manufacturers of footwear and from the healthcare sector. Revenues from Europe accounted for 51% of Group sales, with 25% coming from Asia, and 24% from the Americas.
The Group maintains its belief that its long-term growth prospects are underpinned by its high levels of investment in product development and enhancement. We invested £11.4 million in R&D over the year (accounting for 24% of Group sales), an increase of 7% against our £10.7 million investment in 2011. In line with our long standing policy, we released new versions of all our major products during the year.
Administrative expenses increased by 5% to £16.8 million while distribution costs increased 18% to £10.5 million, largely as a result of the increase in headcount in the sales and support teams. Operating profit increased by £1.8 million to £4.9 million reflecting a margin of 10% on revenues. The net tax charge remains low at 11%, reflecting the significant claim for R&D tax credits.
Profit before tax for the year increased by 54% to £5.1 million compared with £3.3 million generated during 2011 (as restated). Basic earnings per share improved by 65% to 58.2p against 35.3p in the previous year (as restated).
The balance sheet remains strong with net assets up 23% to £19.1 million (2011: £15.5 million). Current assets increased to £21.4 million (2011: £19.1 million) and include trade and other receivables of £9.7 million and cash of £11.1 million. Unrestricted net cash was £10.3 million at the end of the year, up by 8% compared to £9.5 million at the end of 2011. Current liabilities totalled £14.8 million (2011: £12.2 million) and include deferred income of £5.8 million (2011: £4.4 million).
Reflecting the Group’s excellent performance, the Board is pleased to propose a final dividend of 7.0p per ordinary share (2011: 5.25p). This takes the total dividend for the year of 9.5p per share (2011: 7.0p), a rise of 36% on last year. The final dividend will be paid on 14 May 2013 to shareholders on the Register as at 5 April 2013 (the ex-dividend date being 3 April 2013).
Pension regulations require the Group to make good any funding shortfall through deficit contributions in its closed defined benefit scheme. The triennial actuarial valuation as at 5 April 2012, which was measured on an appropriate funding basis, reported a pension deficit of £3.6 million. The Company injected a contribution of £4 million in December 2012 to reduce the likelihood of the scheme's funding falling to below 100% on this funding basis.
For the financial statements valuation, the Company chose to adopt the revised IAS 19 early for 2012 and so has restated the 2011 Income Statement to record a reduction in interest income of £0.4 million. The injection of £4 million to eliminate the actuarial funding deficit, along with movements in market conditions between 5 April 2012 and 31 December 2012, led to a surplus of £1.9 million when measured on an IAS 19 basis. In line with accounting standards, this surplus has not been recognised on the Balance Sheet.
The strong increases in sales seen in recent years continued throughout 2012. Growing investment by organisations across most of our targeted areas of manufacturing created increased demand from both new and existing customers for our software, which helps to improve their efficiency and reduce costs in the design and manufacturing process. Results from our traditional advanced engineering markets, in particular in the automotive and aerospace industries, continued to improve, as did those from our newer healthcare business.
Our highest levels of royalties continue to come from the USA, Germany, Korea, UK and China. The USA was also one of our fastest growing markets, along with Russia and the UK. However, there were many global examples of significant growth, with over 30 of our Sales Partners achieving increases in their sales of more than 20%.
Increasing demand from the aerospace industry continues to drive the growth of Delcam Professional Services Ltd. The facilities within the Company’s Advanced Manufacturing Facility were expanded with the addition of a measuring cell for fully-automated 3D digitising and inspection, and two machining centres. These additions had a combined value of over £1 million.
We have also increased our investment in marketing as we focus on raising our worldwide profile. One result of this investment is the growing number of visitors to our websites. The average number of visits per month has grown from around 250,000 in 2011 to over 400,000 towards the end of 2012. The range of materials on our websites continues to grow, in particular the variety of case studies from our customers, and the number of demonstration and training videos. These online resources continue to provide a growing number of enquiries from prospective purchasers of our solutions.
The increased investment in marketing also attracted more visitors to our international exhibition stands, with particularly good results from the largest manufacturing exhibition in the USA, the International Manufacturing Technology Show held in Chicago in September. At the exhibition, we announced our 40,000th customer, Lifetime Products, a leading US manufacturer of outdoor products.
We strengthened our global network of offices, in particular through the formation of new subsidiaries in Australia and Turkey, and the creation of a joint venture company in Denmark. Many of our existing offices added extra sales and support staff during the year to meet the growing demand for our software. These included our Delcam Taiwan joint venture, which celebrated its 20th anniversary in September 2012 with its largest ever user meeting.
We have expanded our graduate recruitment programme, as part of our drive to ensure that we recruit sufficient high quality engineers to support our growth plans. Total headcount grew to 597 at the end of 2012, up from 551 at the end of 2011.
We continue to work closely with UK Trade & Investment (“UKTI”) to take advantage of its support for our export activities. This included our participation in many UKTI missions, notably one to Turkey led by the Deputy Prime Minister, the Rt. Hon. Nick Clegg, and one to Russia led by Trade & Investment Minister, Lord Green, plus attendance by senior UK diplomats at several of our international events.
We also note that the most recent annual industry report on CAM software vendors, produced by CIMdata Inc. a leading independent global consultancy and published in July 2012, confirmed Delcam’s position as the third largest CAM software vendor globally in 2011, with a market share of 7% - the combined market share of the two leaders was 32%. This was the fourth consecutive year in which Delcam has held this position. The survey also demonstrates the growth potential available to the Group in what is a highly fragmented market.
Our continued progress in 2012 was very encouraging, especially given the levels of financial uncertainty which affected sentiment for investment in many of our important markets. We still have concerns over the financial background in Europe and the USA, and the potential impact on the confidence of our customers to invest in our technology. Despite these uncertainties, at this early stage in the new financial year, we are continuing to see increased sales and a healthy level of sales enquiries. We continue to believe that our broad range of markets, both in geographic terms and in the number of industries we serve, together with our long-term commitment to research and development, leave us well placed to be more successful than the majority of our competitors. Given the positive start to the year, we expect Delcam to make further good progress in 2013.
I would like to thank all our staff worldwide for their loyalty, hard work and dedication during the year, which allowed the Group to set new records for sales and profits.