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5 December 2008

Electronic Data Processing PLC (EDP)

Preliminary results for the year ended 30 September 2008

EDP is an IT solution provider to the UK wholesale distribution industry and a supplier of Sales Intelligence software solutions more widely.

Highlights:

	Turnover up 3.5% at £6.85 million (2007: £6.62 million).
	Adjusted operating profit up 124% at £922,000 (2007: £411,000), representing an underlying margin of 13.5% (2007: 6.2%).
	Pre-tax profit up 52% at £1.065 million excluding profit on sale of property (2007: £700,000).
	Increased demand for Vecta Sales Intelligence product, with 110 customers now contracted (2007: 73).
	Increased demand for hosting. Now 19% of revenues (2007: 16%).
	Continued R&D expenditure of £1.2 million in year.
	Contracted recurring revenues represent 69% of total.
	Cash balances of £8.7 million. Very strong operating cash flows.
	Final dividend of 2.0p per share (2007: 2.0p). Overall dividends, including 5p special dividend paid in August 2008, up 184%.

Michael Heller, Chairman of EDP, said:

'The market sector in which the Group operates will be very challenging over the coming twelve months and new business opportunities will be hard to come by. However, our strengthened sales and marketing team will focus on maximising those opportunities which do arise. Whilst cautious about the coming year, I believe that the business is well-positioned to weather the current economic situation due to its strong recurring revenues and reduced cost base.'

              For further information please contact:

Julian Wassell  Chief Executive 0114 2622007

Toby Mountford  Citigate Dewe Rogerson 020 7638 9571 07710 356611

www.edp.co.uk

  

Chairman's Statement     

I am pleased to report an increase in Group revenue for the year to 30 September 2008 to £6.85 million from £6.62 million last year, despite more challenging trading conditions in the second half. As turnover has continued to grow, our contracted recurring revenues, which relate principally to contracted annual software licences and hosting fees, have been maintained at 69% of total revenues.

Pre-tax profit for the year was £2.22 million. Excluding property disposals, pre-tax profit was £1.065 million compared with £700,000 last year. At the operating level, excluding non-cash IFRS charges and exceptional professional costs, adjusted operating profit was £922,000 (2007: £411,000) representing an operating margin of 13.5 % (2007: 6.2%).

The result for the year reflects, in particular, demand for our Vecta Sales Intelligence product. The Vecta business was acquired in October 2006 and, in line with our expectations at that time, I am pleased to confirm that it was earnings enhancing in 2007/8.  

The number of customers electing to use the Group's hosting facility has once again grown such that 19% of the Group's turnover is now derived from this source (2007: 16%).

We continue to manage the Group's cost base prudently to reflect the changing requirements of the business and the economy generally.  

Research & Development expenditure during the year amounted to £1.2 million (2007: £1.3 million), all of which has been charged in the Income Statement. In the year under review this has largely been focussed on the development of our graphical distribution software application which will be available towards the end of the current financial year. 

During the year we disposed of two freehold properties for a combined consideration of £2.95 million. These generated a profit of £1.16 million. Following the first of these disposals, a special dividend of 5p per share was paid, returning £1.22 million to shareholders.  

With net assets of £14.3 million at 30 September 2008, the Group balance sheet remains strong. Cash balances were £8.7 million compared with £6.0 million at 30 September 2007. This reflects very strong operating cash flows together with the proceeds from property disposals less £1.89 million of dividends paid during the year.

The Group balance sheet still includes a significant amount of freehold property which, following a review by the Board, is now considered to be mostly surplus to the operating requirements of the business. At the date of this report four of the remaining five properties are being marketed for sale or to let, although difficult conditions in the property market may mean that achieving acceptable prices will take some time. However, cost savings can be achieved by the Group following the disposal of these properties.

   

The Board is proposing to pay a final dividend of 2.0p per share, the same as last year. Together with the interim and special dividends, this makes a total for the year of 7.713p (2007: 2.713p), an increase of 184%. If approved by shareholders, the final dividend will be paid on 6 April 2009 to those shareholders on the register at 6 March 2009. The shares will be ex-dividend on 4 March 2009.

On behalf of shareholders I would like to thank all our members of staff for their input over the year.

The market sector in which the Group operates will be very challenging over the coming twelve months and new business opportunities will be hard to come by. However, our strengthened sales and marketing team will focus on maximising those opportunities which do arise. Whilst cautious about the coming year, I believe that the business is well-positioned to weather the current economic situation due to its strong recurring revenues and reduced cost base.

Michael Heller

Chairman

4 December 2008   

  

Chief Executive's Statement

The continued increase in turnover and operating profit during the year is pleasing, particularly bearing in mind the difficult economic environment that we have faced during the second half. Turnover was up over 5% taking into account the anticipated decline in our hardware maintenance revenue, which is expected to contribute no more than £200,000 to revenue in the current year.  

Whilst revenues from our traditional merchanting and distribution market have remained broadly flat, it has been encouraging to see demand for our Vecta Sales Intelligence product continue to grow. Certain of the markets EDP serves are experiencing some difficulties due to current extreme economic circumstances. However, the Group's revenues are not exposed to any particular organisation, with the single largest customer representing less than 4% of total sales in the year to 30 September 2008. 

The Group's cost base continues to be actively managed to reflect the changing requirements of the business and there are currently 95 employees in the Group compared to 102 at the start of the financial year. Cost savings have been achieved throughout the business but we have continued to invest in our sales and marketing resource to ensure we are able to effectively pursue all opportunities. 

I would like to thank my Board colleagues and all our members of staff. Their commitment and hard work are essential to the continued delivery of our software products and services and to the success of the Group in the future.

Operational Review

Distribution Applications

As last year, competition in the marketplace for our four core distribution software applications: Merchant, Charisma, Esprit and The Business Programme, remains robust. We have continued to see existing customers investing in their EDP distribution applications by integrating our other software products: Quantum VS Financials; QVS2, our e-business and catalogue management product; and Quantum Highway, our XML-based system integration tool. However, the current economic conditions facing many of our customers mean that levels of discretionary IT expenditure are currently low with a number of expected orders deferred at 30 September.  

Much of our R&D effort this year has been concentrated on delivery of our graphicalised distribution application which will allow us to effectively pursue new customers for the first time in a number of years. We are on schedule to deliver to customers by summer 2009. Whilst we do not anticipate it having a significant impact on results for the current financial year, not least due to the prevailing economic climate, it will be an important product for us to both drive new business sales and retain existing customers within our traditional market place beyond summer 2009. We have already been involved in demonstrating this product to a number of prospects.

Vecta

Demand for Vecta, our leading Sales Intelligence product, has continued to grow over the year and we now have 110 customers contracted (2007: 73). We continue to invest in the onward development of this product and a browser-based version is scheduled for release around the end of 2009. This will allow any user with a connection to the web, including through smart phones and other mobile devices, to have access to the product. 

Whilst all new business opportunities require considerable effort to convert into orders at the current time, Vecta does have a number of features that make it saleable even in the current economic climate: it is designed to help users sell more, it is straightforward to use and is capable of providing our customers with a return on their investment within a matter of months. Accordingly we have increased our marketing and sales efforts in this area in order to maximise opportunities.

 

Hosting

The proportion of Group revenues delivered through our hosting centre in Milton Keynes has increased again this year. We currently host 74 customers, up from 56 last year. This revenue stream now accounts for 19% of revenues compared with 16% last year. However, when existing customers switch to hosting this increase is typically offset in part by a reduction in traditional licence revenue.  

Hosting allows our customers to outsource the management of their IT facilities so that they can either reduce costs in their own business and/or concentrate on using their systems for the greater benefit of their business. The Group's recurring revenue stream is strengthened through the long-term contracts associated with hosting which are typically between 3 and 5 years.

All of the Group's software products can be delivered using the hosting model. It also allows us to address many of the requirements of customers who may be considering a SaaS (software as a service) - type solution by providing them with managed hardware, operating system and software applications via a secure internet service. 

We have upgraded the infrastructure supporting the hosting centre during the year which allows us to accommodate a significant number of additional customers.

Property disposals

During the year we disposed of two freehold properties. The Group's former head office building was sold for £1.35 million in February 2008, which generated a profit of £668,000. This property was surplus to operating requirements and had been leased to generate an annual rental income of £65,000.  

In September 2008 we sold our office building in Warrington for £1.6 million, which generated a profit of £489,000. The property was too large for our requirements and, following its sale, we have leased back approximately one quarter of the building for £24,000 a year. This has generated net cost savings for the Group.

We have concluded that, of the Group's remaining five freehold properties, four are not required for our ongoing operational purposes and accordingly they are currently being offered for sale or to let. In the current climate we do not anticipate achieving quick sales but we are mindful of the fact that the Group can make savings on property-related costs following the disposals. These savings will naturally be taken into account when considering potential sale values.

Financial Review

Overall Group revenues grew to £6.85 million from £6.62 million last year. The level of recurring revenue has increased in line with overall turnover. Contracted recurring revenue was £4.70 million during the year, 69% of total Group revenue, which compares with £4.54 million last year. Recurring revenue from software licences and hosting fees increased by £247,000. This was partly offset by our planned exit from hardware maintenance which reduced recurring revenue by £82,000.

Pre-tax profit for the year was £2.22 million including profit on disposal of two properties amounting to £1.16 million. Excluding these disposals, profit before tax was £1.065 million which compares with £700,000 last year, an increase of 52%.

Operating profit, adjusted for non-cash charges, which arise under IFRS, of £168,000 and exceptional professional costs of £64,000, amounted to £922,000. This represents an increase of 124% over last year. This reflects both increased turnover and reduced costs within the Group. Cost savings have arisen principally due to reduced employee numbers.

Interest income for the year at £375,000 was 30% up on last year due to higher cash balances being held throughout the year.

The tax charge for the year was £390,000. The effective tax rate of 17.6% reflects a low tax charge on the profit on disposal of properties due to indexation.

Earnings per share (EPS) amounted to 7.47p. However, excluding the profit on disposal of properties gives a normalised EPS of 3.07p, which compares with 1.95p last year, an increase of 57%.

At 30 September 2008 our cash balances amounted to £8.73 million compared with £5.96 million at 30 September 2007, an increase of £2.77 million. Proceeds from the disposal of two properties amounted to £2.95 million and £1.89 million was paid out in dividends. Operating cash flows were very strong at £1.97 million (2007: £713,000) however, this included a short-term timing difference of £280,000 relating to VAT charged on the disposal of our Warrington property which will reverse in January 2009.

Group net assets have increased to £14.3 million at 30 September 2008 from £13.9 million at 30 September 2007. This is principally due to an increase in the surplus on the Group's defined benefit pension scheme recognised under IAS 19 of £436,000, net of deferred tax. Dividends paid, including the 5p special dividend, were broadly equivalent to the retained profit for the year.

Outlook

Given the present economic climate, I am cautious about the outlook for the coming year. New orders will be hard fought for but we have strengthened our sales team to address this.  

The day to day cash operating expenses of the business are largely covered by our recurring revenues. This, together with a strong, debt-free balance sheet and lack of dependency on any single customer means that we can move forward from a position of strength.

Julian Wassell

Chief Executive

4 December 2008

  

Consolidated Income Statement
for the year ended 30 September 2008
			2008		2007
			£'000		£'000
Revenue			6,850		6,618
Gross profit			6,299		6,089
Administrative expenses			(5,609)		(5,678)
Operating profit			690		411
Profit on sale of property			1,157		-
Finance income			375		289
Profit before tax			2,222		700
Income tax expense			(390)		(222)
Profit for the period attributable to equity holders of the parent			1,832		478
Earnings per share - basic and diluted			7.47p		1.95p
Dividends per share			7.713p		2.713p
Net assets per share			58.4p		56.7p

Consolidated Statement of Recognised Income and Expense
for the year ended 30 September 2008
			2008		2007
			£'000		£'000
Net actuarial gains on defined benefit pension scheme			643		1,352
Tax on items recognised directly in equity			(180)		(391)
Foreign exchange translation difference			-		(5)
Net income recognised directly in equity			463		956
Profit for the period			1,832		478
Total recognised income and expense attributable to equity holders of the parent
			2,295		1,434

  

Consolidated Balance Sheet
at 30 September 2008
		2008		2007
		£'000		£'000
	Non-current assets
	Property, plant and equipment	6,491		6,480
	Investment property	-		660
	Deferred tax asset	9		15
	Employee benefits	1,429		823
	Intangible assets	781		924
		8,710		8,902
	Current assets
	Assets held for sale	-		1,082
	Inventories	134		162
	Trade and other receivables	2,193		2,436
	Cash and cash equivalents	8,734		5,963
		11,061		9,643
	Total assets	19,771		18,545
	Current liabilities
	Deferred income	(2,740)		(2,528)
	Income tax payable	(138)		(154)
	Trade and other payables	(1,694)		(1,333)
		(4,572)		(4,015)
	Non-current liabilities
	Deferred income	(222)		(242)
	Deferred tax liability	(660)		(375)
		(882)		(617)
	Total liabilities	(5,454)		(4,632)
	Net assets	14,317		13,913
	Equity
	Issued capital	1,226		1,226
	Share premium	119		119
	Capital redemption reserve	88		88
	Translation reserve	(3)		(3)
	Retained earnings	12,887		12,483
	Total equity attributable to equity holders of the parent	14,317		13,913

  

Consolidated Cash Flow Statement
for the year ended 30 September 2008
			2008		2007
			£'000		£'000
	Cash flows from operating activities
	Profit for the period		1,832		478
	Adjustments for:
	Depreciation		254		292
	Amortisation		170		88
	Net (profit)/loss on disposal of property, plant and equipment		(1,166)		9
	Pension charge		37		140
	Pension fund payments		-		(190)
	Finance income		(375)		(289)
	Income tax expense		390		222
	Change in inventories		28		48
	Change in receivables		251		(287)
	Change in payables		361		(199)
	Change in deferred income		192		401
	Cash received from operations		1,974		713
	Interest received		367		285
	Income taxes paid		(295)		(19)
	Net cash from operating activities		2,046		979
	Cash flows from investing activities
	Acquisition of business		-		(919)
	Purchase of property, plant and equipment		(315)		(115)
	Purchase of intangible assets		(27)		(23)
	Proceeds from sale of property, plant and equipment		2,958		210
	Net cash generated from/(used in) investing activities		2,616		(847)
	Cash flows from financing activities
	Sale of own shares		-		36
	Dividends paid		(1,891)		(639)
	Net cash used in financing activities		(1,891)		(603)
	Net increase/(decrease) in cash and cash equivalents		2,771		(471)
	Cash and cash equivalents at beginning of period		5,963		6,439
	Effect of exchange rate fluctuations on cash held		-		(5)
	Cash and cash equivalents at end of period		8,734		5,963

  

Notes

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2007 or 2008. The financial information for 2007 is derived from the statutory accounts for 2007 which have been delivered to the Registrar of Companies. The auditors have reported on the 2007 accounts; their report was  (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2008 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

Earnings per share

Earnings per share is calculated by dividing the profit for the period attributable to equity holders of the parent of £1,832,000 (2007: £478,000) by 24,522,362 (2007: 24,460,800), being the weighted average number of shares in issue during the year. Basic and diluted earnings per share are both 7.47p (2007: 1.95p).

Reconciliation of movement in equity and reserves

	Issued		Share		Capital		Translation		Retained		Total
	Capital		premium		redemption		reserve		earnings
					reserve
	£'000		£'000		£'000		£'000		£'000		£'000
At 1 October 2007	1,226		119		88		(3)		12,483		13,913
Total recognised income and expense	-		-		-		-		2,295		2,295
Dividends paid	-		-		-		-		(1,891)		(1,891)
At 30 September 2008	1,226		119		88		(3)		12,887		14,317
This preliminary announcement was approved by the Board of Directors on 4 December 2008.

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