Prologic plc
04 June 2007
PGC.L
Prologic plc
('Prologic' or the 'Company'or the 'Group')
Preliminary results for the year ended 31 March 2007
Prologic is one of the leading providers of IT business solutions to fashion and
lifestyle retailers and distributors.
Financial highlights
• Solid performance in line with expectations.
• Turnover up 9% to £10.6 million (2006 £9.7 million).
• Recurring revenues up 18% to £5.1 million (2006 £4.3 million),
representing 48% of total revenue.
• Operating profit before amortisation of goodwill up 11% to £1.2 million
(2006 £1.1 million).
• Recommended full year dividend up 50% to 1.5p per share (2006 1.0p per
share).
• Continuing strong cash flow results in a year end cash balance of £1.9
million (31 March 2006 £1.4 million) and a net cash position of £1.2
million (31 March 2006 £0.5 million).
• Adjusted EPS* 8.6p per share (2006 8.7p).
*Adjusted EPS is calculated on earnings before goodwill amortisation.
Significant Contracts
• Contract wins in the period with:
• TM Lewin (major national shirt retailer).
• Graham Tiso (outdoor clothing and equipment specialist).
• Go Outdoors (outdoor clothing and equipment specialist).
• Implementations completed at Arsenal FC and Liverpool FC.
Business Drivers
• Major investment made in consultancy and business services division,
which is enabling Prologic to secure new business at a very early stage by
providing an advisory role to clients during their IT procurement process.
• Fully integrated consumer ecommerce solution to be released in 2007.
• Significant investment in developing repeatable implementation
processes, which will enable lower cost delivery through 'on demand' ASP
model, and capability to deliver through 3rd party resellers.
Sam Jackson, Prologic's Managing Director commented:
'We have had another year of solid growth underpinned by high profile contract
wins such as TM Lewin. New strategies are in place to accelerate the growth of
our business and we are confident of significant progress over the medium term'.
For more information, please contact:
Prologic plc 01442 876 277
Sam Jackson, Managing Director
David Parry, Finance Director
WH Ireland Limited 0161 832 6644
David Youngman
Biddicks 020 7448 1000
Shane Dolan
Chairman's statement
Introduction
The year ended 31 March 2007 has been another period of growth and development
for Prologic and has further strengthened our position as one of the leading IT
solutions providers to the fashion and lifestyle industry. Once again results
have been in line with expectations, with operating profit (before amortisation
of goodwill) growing to £1.2 million, up 11% on last year.
This year, the Company made a significant investment in the recruitment of
highly experienced fashion industry consultants to meet growing demand from both
existing and potential clients. As anticipated, this has had a short-term effect
on profits, however our strategy has proved to be very successful, generating
two consultancy projects, which led to significant contract wins with TM Lewin
and Graham Tiso during the period.
TM Lewin is a national shirt retailer with 50 stores and ambitious growth plans.
Graham Tiso was one of two new business wins we had this year from outdoor
clothing and equipment specialists, the other being Go Outdoors. We have a
strong presence in the outdoor market place, with other clients including Fat
Face and White Stuff.
Unify, our innovative solution combining Chip & PIN and other services with a
resilient store communications network, has continued to grow rapidly. An
additional two customers contracted for the service this year and it achieved
turnover in excess of £1 million, less than 3 years from its introduction.
During the year we undertook a wide-ranging customer survey and I would like to
thank all our customers who took part. We have used the feedback to define and
implement a number of operational changes to improve our services and our
communications with clients. This is part of an on-going process, and we will
undertake further surveys from time to time to check on our progress.
Financial results
The Group's results were in line with expectations, with solid growth in both
turnover and operating profit over the previous year. Turnover was £10.6
million, a 9% increase, whilst operating profit (before amortisation of
goodwill) increased by 11% to £1.2 million.
2007 2006
£'000 £'000
Turnover 10,562 9,657
Cost of sales (5,784) (4,898)
-------- --------
Gross profit 4,778 4,759
R&D and overheads (3,558) (3,655)
-------- --------
Operating profit before goodwill 1,220 1,104
-------- --------
The retained profit for the year was £445,000.
Adjusted earnings per share was 8.60p (2006 8.66p), whilst basic earnings per
share was 4.45p (2006 4.49p).
The business continued to be strongly cash generative, with a net cash increase
of £0.5 million. The year end cash balance increased to £1.9 million from £1.4
million and the Group's year end net cash position grew to £1.2 million from
£0.5 million.
Dividends
As a result of this solid financial performance, and particularly the continuing
strong cash flow, the Board is recommending a dividend of 1.5p per ordinary
share (1.0p last year). This will enable shareholders to benefit from the growth
in the business, whilst ensuring there are sufficient resources available to
invest for continued growth in earnings. Subject to shareholder approval at the
AGM, the dividend will be paid on 3 August 2007 to shareholders on the register
at the close of business on 13 July 2007.
Management and staff
Prologic has an outstanding executive team and a highly talented and dedicated
workforce. Together they have achieved excellent results in 2007, whilst at the
same time evolving the business to better satisfy their customers and to
maximise the market opportunity.
Significant opportunities exist for our business going forward and I would like
to thank all of our staff for their commitment to date as Prologic continues to
consolidate its position as one of the leading IT solutions providers to the
fashion and lifestyle sectors.
Derek Lewis
Chairman
4 June 2007
Prologic plc
Registered Office:
Redwood House
Berkhamsted
Herts
HP4 2DH
Registered Number: 05031466
Managing Director's review
Once again it is gratifying to report that our Company is making excellent
progress. We continue to acquire new customers for our enterprise solution CIMS,
and to increase our solid cash generative recurring revenues. At the same time
we are fast developing new capabilities to accelerate future growth.
Fashion, comprising clothing, footwear and accessories, is the UK's second
largest consumer market after groceries. As an independent author of enterprise
systems, Prologic now occupies a privileged position in this sector.
In addition to our proven technical capabilities, significant opportunities have
been created for Prologic as a result of the recent high profile financial
difficulties suffered by a major acquisitive competitor. Prologic is now
competing primarily against Microsoft resellers who do not own their
intellectual property and are therefore unable to realise the gross margin
available to our business.
In addition, our new consultancy and business services division now comprises 19
people, with senior merchandisers and business managers from companies including
Top Shop, New Look, Puma, Monsoon, BHS, Mothercare and River Island. We fully
understand the fashion and lifestyle sectors and our recent contracts with TM
Lewin and Graham Tiso, which began as consultancy projects, clearly endorse
Prologic's expertise.
Independent research by Market Dynamics commissioned by Prologic on the fashion
industry and the performance of companies within it between 2000 and 2005
clearly shows that companies that adopted Prologic's software sold more stock
and were more profitable than their peer group. I believe that this is testimony
to the strengths of our integrated business solutions, which include modules to
handle merchandising, warehousing, epos, and mail order, and enables clients to
maximise their sales via these channels.
Over the past few years, many fashion companies (including several Prologic
customers) have implemented small scale internet stores. Companies are
recognising that internet sales are now central to future business growth and
are ready to invest more seriously in integrated and scalable web store systems.
In 2007, Prologic will launch a hosted consumer ecommerce service which gives
control of web store design to the customer while delivering an enterprise scale
content management, order processing and fulfilment solution that is fully
integrated with and embedded within the CIMS multi-channel application.
We are continuing to develop the scalability of our business model and to invest
strongly in R&D to deliver world- class functionality. As part of this process,
we are developing a new strategy to accelerate growth by developing lower cost
delivery methods such as on-demand ASP, which we expect to be available within
12 months. This new strategy will allow Prologic to deliver its technology via
UK and overseas resellers and to target a significant new client base. As the
software market continues to mature, the expertise to deliver low cost, low risk
IT projects with a clear return on investment will become of paramount
importance. Prologic is primed for substantial growth over the medium term and
we believe no competing company is better placed to develop and exploit this
opportunity.
I look forward to continued success.
Sam Jackson
Managing Director
4 June 2007
Financial review
Operating results
2007 2006
£'000 £'000
Turnover 10,562 9,657
Cost of sales (5,784) (4,898)
-------- --------
Gross profit 4,778 4,759
Gross margin 45.2% 49.3%
Research and development (808) (1,026)
Overheads (2,750) (2,629)
-------- --------
Operating profit before amortisation of goodwill 1,220 1,104
Return (before amortisation of goodwill) on sales 11.6% 11.4%
Amortisation of goodwill (415) (417)
-------- --------
Operating profit 805 687
Interest (55) (58)
-------- --------
Profit on ordinary activities before taxation 750 629
-------- --------
Overall turnover increased by 9% over the previous year, with software and
hardware sales from new name customers increasing by 76%. Recurring revenues
increased by 18% and represented 48% of the total turnover, up from 45% in 2006.
Gross profit was virtually the same as last year and there was a 5% reduction in
gross margin, primarily a result of:
• The costs of the functional heads of department relating to services
and support being included in cost of sales in 2007 whereas previously they
were included in overheads.
• Our investment in recruiting additional fashion sector consultants
which, although it has had a short-term impact on gross profit, has enabled us
to successfully carry out consultancy projects leading to two significant new
business wins; TM Lewin and Graham Tiso.
• Increased resources focussed on support to provide a more responsive
service for our customers.
• An increased contribution to total revenue coming from Unify which,
although it generates a lower gross margin than other revenue streams, has
built into a significant new stream of recurring revenue.
Research and development expenditure in 2007 was 8% of turnover, having been 11%
of turnover the previous year. This reduction arose as some development heads
were focussed on other areas of the business to meet demand. The Board remains
committed to making a significant and effective investment in R&D to ensure CIMS
maintains its leading position as one of the leading fully integrated,
multi-channel IT solutions available. Turnover for 2007 includes £0.4 million
contribution towards R&D expenditure by customers funding specific developments.
There was a 5% increase in overheads in 2007, where additional costs associated
with increases in sales and pre-sales resources were partly offset by the
transfer from overheads to cost of sales of costs related to the services and
support functional heads.
The above factors resulted in an 11% increase in operating profit (before
goodwill) to £1.22 million from £1.10 million, in line with market expectations.
The return (before goodwill) on sales showed a slight increase to 11.6% from
11.4%.
Taxation
The effective tax rate for the year was 41%, which is above the UK standard rate
of tax of 30%. The amortisation of goodwill, which is not allowable for tax
relief, was partly offset by the R&D tax credit. There was also a £26,000 charge
relating to an amendment to the previous year's R&D tax credit claim.
Balance sheet
The Group balance sheet at 31 March 2007 shows net assets of £7.8 million,
including goodwill of £7.2 million. At 31 March 2006, net assets were £7.5
million, with goodwill of £7.6 million.
Cash flow
During the year the Company continued to benefit from strong cash flows,
generating £1.3 million from operating activities, having generated £0.9 million
the previous year. There was a net increase in cash of £0.5 million and the
Company's net cash position increased to £1.2 million from £0.5 million at the
end of the previous year.
UK and International Financial Reporting Standards ('FRS' and 'IFRS')
The reported results adopted FRS 20, with the fair value of share options being
expensed over their vesting period. Due to the minor impact its adoption has on
the financial statements, no prior year adjustments have been considered
necessary. The Company has granted options in respect of 499,629 shares of which
347,629 have vested; the remainder are due to vest between March 2008 and
January 2009.
The reported results also adopted FRS 21 such that the dividends proposed by the
Company were not recognised until the year in which they were approved.
The Group intends to publish its first annual results based on IFRS for the year
ended 31 March 2008, including comparatives for the year ended 31 March 2007, in
accordance with AIM requirements. The interim results for the half-year ending
30 September 2007 will also be based on IFRS, including comparatives. The audit
committee and the board have assessed the implications, having taken guidance
from the Company's advisors, and a project has commenced to manage the
transition to IFRS. The key areas of impact for the Group are expected to be the
capitalisation and subsequent amortisation of qualifying development
expenditure, and the treatment of goodwill.
David Parry
Finance Director
4 June 2007
Prologic plc
Consolidated profit and loss account for year ended 31 March 2007
Note 2007 2006
£'000 £'000
Turnover 10,562 9,657
Cost of sales (5,784) (4,898)
-------- --------
Gross profit 4,778 4,759
Administrative expenses
Other administrative expenses (3,558) (3,655)
Goodwill amortisation (415) (417)
-------- --------
(3,973) (4,072)
-------- --------
Operating profit 805 687
Interest payable and similar charges (68) (86)
Interest receivable 13 28
-------- --------
Profit on ordinary activities before taxation 2 750 629
Tax on profit on ordinary activities 3 (305) (180)
-------- --------
Profit for the financial period 9 445 449
-------- --------
Pence Pence
Basic earnings per share 4 4.45 4.49
-------- --------
Diluted earnings per share 4 4.43 4.49
-------- --------
There were no recognised gains or losses other than the profit for the financial
year.
All operations are continuing.
Prologic plc
Consolidated balance sheet at 31 March 2007
Note 2007 2006
£'000 £'000
Fixed assets
Intangible assets 7,157 7,572
Tangible assets 358 222
-------- --------
7,515 7,794
Current assets
Stocks 94 162
Debtors 4,213 3,883
Cash at bank and in hand 1,907 1,434
-------- --------
6,214 5,479
Creditors: amounts falling due within one year (2,363) (2,286)
-------- --------
Net current assets 3,851 3,193
-------- --------
Total assets less current liabilities 11,366 10,987
Creditors: amounts falling due after more than one
year (403) (672)
Provisions for liabilities (21) (47)
Accruals and deferred income (3,120) (2,805)
-------- --------
7,822 7,463
Capital and reserves
Called up share capital 50 50
Share premium account 8 2,734 2,734
Merger relief reserve 8 3,924 3,924
Other reserve 8 44 30
Profit and loss account 8 1,070 725
-------- --------
Shareholders' funds 9 7,822 7,463
-------- --------
Prologic plc
Consolidated cash flow statement for year ended 31 March 2007
Note 2007 2006
£'000 £'000
Net cash inflow from operating activities 7 1,316 859
Returns on investments and servicing of finance
Interest received 13 28
Interest paid (59) (78)
------- -------
Net cash outflow from returns on investments and
servicing of finance (46) (50)
------- -------
Taxation (208) 58
Capital expenditure and financial investment
Purchase of tangible fixed assets (280) (97)
Equity dividends paid (100) -
------- -------
Net cash inflow before financing 682 770
Financing
Repayment of borrowing (209) (278)
------- -------
Increase in cash 5/6 473 492
Prologic plc
Preliminary announcement notes
1. Basis of preparation and reporting
The preliminary announcement has been prepared in accordance with applicable
accounting standards, except in relation to a true and fair override in respect
of the valuation of subsidiary undertakings, and under the historical cost
convention.
The financial information set out in the preliminary announcement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
The balance sheet at 31 March 2007, the profit and loss account, cash flow
statement and associated notes for the period then ended have been extracted
from the Group's 2007 statutory financial statements, which have not been
delivered to the Registrar of Companies. The statutory financial statements for
2006 have been delivered to the Register of Companies and the statutory
financial statements for 2007 will be delivered to the Registrar following the
Company's AGM. The auditor's opinion on the 2007 statutory financial statements
is unqualified and does not include any statement under Section 237 of the
Companies Act 1985.
2. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after:
2007 2006
£'000 £'000
Depreciation 144 109
Amortisation 415 417
Hire of plant and machinery 13 11
Other operating lease rentals 184 173
Auditor's remuneration
- audit services 28 25
- tax compliance 5 5
- other services 5 7
Research and development expenditure 808 1,026
------- -------
3. Taxation
2007 2006
£'000 £'000
Corporation tax at 30% 270 181
Adjustments in respect of prior years 26 3
------- -------
Total current tax 296 184
Deferred tax - origination of and reversal of timing
differences 9 (4)
------- -------
Tax on profit on ordinary activities 305 180
------- -------
Factors affecting tax charge for period:
2007 2006
£'000 £'000
Profit on ordinary activities multiplied by standard
rate of corporation tax in the UK of 30% 225 189
------- -------
Effect of:
Expenses not deductible for tax purposes 26 14
Depreciation and amortisation for the period in
excess of capital allowances 117 128
Research and development tax credit (83) (127)
Marginal relief (15) (23)
Adjustments in respect of prior years 26 3
------- -------
Current tax charge for the period 296 184
------- -------
There is no un-provided deferred tax.
4. Earnings per share
Earnings per share has been calculated by dividing the earnings attributable to
shareholders by the average number of shares in issue during the period. The
diluted number of shares assumes the dilution effect of converting the share
options in issue during the period into ordinary shares.
2007 2006
Number Number
Weighted average number of ordinary shares 10,000,000 10,000,000
Diluted weighted average number of ordinary shares 10,051,026 10,000,000
2007 2006
£'000 £'000
Retained profit 445 449
Amortisation of goodwill 415 417
------- -------
Adjusted earnings 860 866
------- -------
2007 2006
Pence Pence
Basic earnings per share 4.45 4.49
------- -------
Diluted earnings per share 4.43 4.49
------- -------
Basic adjusted earnings per share 8.60 8.66
------- -------
Diluted adjusted earnings per share 8.56 8.66
------- -------
The adjusted earnings per share figures are provided as the directors believe
they provide a better indication of the underlying performance than basic
earnings.
5. Analysis of changes in net debt
The group At At
1 April Non cash 31 March
2006 Cash flow items 2007
£'000 £'000 £'000 £'000
Cash in hand and at bank 1,434 473 - 1,907
Bank loans (941) 209 (9) (741)
-------- -------- -------- --------
493 682 (9) 1,166
-------- -------- -------- --------
Borrowings are repayable as follows:
The group and company 2007 2006
£'000 £'000
Within one year
Bank loan 338 269
After one and within two years
Bank loan 269 269
After two and within five years
Bank loan 134 403
-------- --------
741 941
-------- --------
6. Reconciliation of net cash flow to movement in net debt
The group 2007 2006
£'000 £'000
Increase in cash in the year 473 492
Cash outflow from financing 209 278
-------- --------
Change in net debt resulting from cash flows 682 770
Non-cash items (9) (7)
-------- --------
Movement in net debt in the year 673 763
Net cash/(debt) at 1 April 493 (270)
-------- --------
Net cash at 31 March 1,166 493
-------- --------
7. Reconciliation of operating profit to net cash flow from operating
activities
2007 2006
£'000 £'000
Operating profit 805 687
Share option charge 14 6
Depreciation 144 109
Amortisation 415 417
Decrease/(increase) in stock 68 (84)
(Increase) in debtors (337) (712)
Increase in creditors 207 436
-------- --------
Net cash inflow from operating activities 1,316 859
-------- --------
8. Statement of movement in reserves
The group and company Share Merger
premium relief Other Profit and
account reserve reserve loss account
£'000 £'000 £'000 £'000
At 1 April 2,734 3,924 30 725
Share option charge - - 14 -
Retained profit for the year - - - 445
Dividends - - - (100)
-------- -------- -------- --------
At 31 March 2007 2,734 3,924 44 1,070
-------- -------- -------- --------
Merger relief arises on acquisitions made by the Group where shares are provided
as part of the purchase consideration, and is included in the merger relief
reserve.
This occurs as section 131 of the Companies Act 1985 does not allow the
difference between the fair value and nominal value of such shares to be taken
to the share premium account.
9. Reconciliation of movements in shareholders' funds
The group and company 2007 2006
£'000 £'000
Profit for the year 445 449
Dividends (100) -
Increase in other reserves 14 6
-------- --------
Net increase in shareholders' funds 359 455
Opening shareholders' funds 7,463 7,008
-------- --------
Closing shareholders' funds 7,822 7,463
10. Dividends
The Board has recommended a dividend of 1.5p per share and, in accordance with
FRS 21, this will not be recognised until the period in which it is approved.
Subject to shareholder approval at the AGM, the dividend will be paid on 3
August 2007 to shareholders on the register at the close of business on 13 July
2007.
11. Availability of Annual Report
Copies of the Annual Report will be despatched to shareholders on 22 June 2007.
Additional copies are available to the public, free of charge, from the
Company's registered office:
Redwood House
Rectory Lane
Berkhamsted
Herts
HP4 2DH
The Annual Report will also be available from the Company's website:
www.prologic.net.
This information is provided by RNS
The company news service from the London Stock Exchange