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Half-year Results - 6 months to 31 March 2017

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RNS Number : 8032I
Electronic Data Processing PLC
22 June 2017
 

22 June 2017

 

Electronic Data Processing PLC (EDP)

 

Half-year results - 6 months to 31 March 2017

 

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

 

Financial Highlights

 

·

Turnover £2.54 million (2016: £2.51 million)

·

 

Adjusted operating profit increased by 8.3% to £260,000 (2016: £240,000), resulting in an operating margin of 10.2% (2016: 9.6%)

·

Hosting revenues represent 61% of total revenues (2016: 58%)

·

Contracted recurring revenues represent 80% of total revenues (2016: 81%)

·

R&D expenditure amounted to £461,000 in first half (2016: £500,000)

·

 

Sale of last remaining surplus freehold property in Milton Keynes completed in December 2016 for £1.2 million

·

Strong, debt-free balance sheet with total cash balances of £6.7 million

·

Interim dividend of 2p per share, the same as last year, returns £254,000 to shareholders

·

 

Strategic review is continuing and EDP remains in discussions with a single party.  The Company will update shareholders further when it is in a position to do so.

 

 

Sir Michael Heller, Chairman of EDP, said:

 

"Whilst trading conditions remain competitive, the second half has started well and we remain confident about the outlook for the remainder of the year."

-Ends-

 

For further information please contact:

 

Julian Wassell

James Storey

Toby Mountford

Chief Executive

Finance Director

Citigate Dewe Rogerson

0114 262 2010

0114 2622010

020 7638 9571

07710 356611

 

www.edp.co.uk

 

 

Chairman's Statement

 

Turnover for the six months ended 31 March 2017 at £2.54 million was 1.3% up on the same period last year (2016: £2.51 million). 

Adjusted operating profit increased by 8.3% to £260,000 (2016: £240,000).  This represents an operating margin of 10.2% compared with 9.6% in the prior period.  The improvement in operating profit reflects the increase in top line sales and tight control of our costs.

Adjusted operating profit excludes one-off costs and non-cash IFRS adjustments and is the measure the Directors use to monitor the performance of the business on a day to day basis.

Statutory pre-tax profit for the six months was £180,000 compared with £116,000 in the prior year. A reconciliation of adjusted operating profit to statutory pre-tax profit is shown in note 5.

At the full year we reported that we had seen some delays in purchasing decisions by customers around the year end.  Whilst trading conditions remain competitive, we have seen an upturn in sales activity levels since the turn of the year and at the date of this statement our overall sales remain ahead of the same period last year.

In line with our long-term strategy, we continue to transition our core business away from our older ERP software products, which we continue to support, to our latest product Quantum VS.  New business sales activity remains a priority for us and we have continued to sign new customers for both our ERP solution Quantum VS and our CRM/BI product Vecta.

Product R&D during the period, which is primarily focussed on Quantum VS and Vecta, was £461,000 (2016: £500,000). 

We have continued to pursue our strategy of growing the number of customers who receive their software through our hosting service, strengthening our relationships with them, and in turn growing this recurring revenue stream.  During the first half hosting revenues represented 61% (2016: 58%) of total sales. 

Overall contracted recurring revenues, arising from annual software licences and hosting fees, remained strong at 80% of total revenues (2016: 81%) providing us with good visibility.

The tax charge for the period at £34,000 represents an effective tax rate of 19% which compares with 36% in the corresponding period last year.  Last year's charge of £42,000 included the effect of a one-off deferred tax charge of £18,000 following a change in the corporation tax rate.

As reported at the full year stage we sold our last remaining surplus property in December 2016 for £1.2 million. As the property's carrying value had been adjusted previously to reflect the agreed sale price this resulted in neither a profit nor a loss in the period under review.  The sale generates cost savings of £20,000 per annum.  Overall the property disposal strategy which we commenced some years ago has generated more than £7 million of cash and has supported distributions to shareholders of £11 million over that time.

Group net assets were £3.7 million at 31 March 2017 compared with £3.2 million at the end of the previous financial year.  The principal reason for the increase was an improvement in the position on the Group's defined benefit pension scheme under IAS 19.  During the period, the liability for the scheme as valued under IAS 19 reduced by £637,000 to £2.59m after deferred tax. The movement included a total actuarial gain of £672,000 after deferred tax, the most significant factor being an increase in the discount rate assumption from 2.2% to 2.6% over the reporting period.

The last full actuarial valuation of the scheme was carried out at 31 July 2013 and showed a small surplus of £62,000.  As previously reported, the updated triennial valuation as at 31 July 2016 is underway and is due to be finalised by October 2017.  The latest draft valuation report shows a deficit of £490,000.  This deficit, as currently identified, suggests a ten-year scheme funding cash contribution of £75,000 per annum.  These amounts are provisional and subject to further review and analysis.  Once the valuation is finalised shareholders will be updated accordingly.

The assets of the scheme are held in a with-profit Grouped Funding policy. The main difference between the IAS19 valuation and the ongoing funding valuation is that IAS19 requires the Grouped Funding policy to be valued at its discontinuance surrender value at the period end. Conversely, the ongoing scheme funding valuation values the Grouped Funding policy actuarially and takes into account the guaranteed annuity rates secured under the policy. The scheme is closed to further service accrual.

Cash and cash equivalents at the balance sheet date were £6.7 million, up from £5.4 million following the sale of the property referred to above.

We have previously announced that we are carrying out a strategic review of the business and we provided an update on the process to shareholders ahead of the Annual General Meeting in March.  The strategic review is continuing and the current situation is that we remain in discussions with a single party.  The Company will update shareholders further when it is in a position to do so.

Your Directors have resolved to pay an interim dividend of 2p per share, the same as last year.  However, I would reiterate the comment made in March that should the strategic review process not result in an offer being made for the Company, then, subject to any constraints on distributable reserves and rules of the Takeover Code, the Board intends to consider returning an amount of cash to shareholders. The interim dividend will be paid on 1 August 2017 to those shareholders on the register on 30 June 2017. The shares will be ex-dividend on 29 June 2017.

As ever I would like to thank our staff for their hard work and commitment.

Whilst trading conditions remain competitive, the second half has started well and we remain confident about the outlook for the remainder of the year.

 

Sir Michael Heller

21 June 2017

Chairman


 

 

Principal Risks and Uncertainties

 

We operate in a changing economic and technological environment that presents risks, many of which are driven by factors that we cannot control or predict. The key risks and uncertainties facing EDP and the measures taken to mitigate these risks are as follows:

 

 

Systems and networks

 

Risk

 

EDP's business operations rely significantly on the efficient and uninterrupted operation of its information technology systems and networks.

 

Our computer network may be vulnerable to unauthorised access, viruses and other disruptive problems.

 

Potential impact

 

Any damage or interruption to EDP's networks, however caused, could have a material adverse effect on the delivery of our products and services.

 

A party that is able to override security measures could misappropriate proprietary information or cause disruption to our operations.

 

Mitigation

 

We continually review and test the security of internal systems and networks and have developed recovery plans in the event of systems disruption. We use a third party to internally and externally scan our network to identify any potential vulnerability.

 

Where reliance is placed upon externally provided systems and networks we undertake regular performance ability reviews and ensure that contracts provide for an appropriate level of service maintenance.

 

 

Product technology advances

 

Risk

 

The markets in which EDP operates are characterised by evolving technology, market practices and industry standards.

 

Potential impact

 

Competitors could develop superior products or more cost-effective techniques which could render our products uncompetitive or less acceptable to the market. This could result in the loss of new revenue opportunities, the non-renewal of contracts by existing customers or the failure of users of our legacy applications to migrate to Quantum VS.

 

Mitigation

 

We have an ongoing commitment to research and development which allows us to identify and adapt to any technological and market changes that do occur thereby ensuring that our products continue to meet the demands of our customers.      

 

 

External economic factors

 

Risk

 

As with most other businesses in the UK, our operations can be adversely affected by a significant downturn in the economy.

 

Potential impact

 

Restricted availability of finance for businesses and a stagnant or recessionary economy could have an adverse effect on the prospects for EDP, as potential customers, particularly in the builders and timber merchants sectors may scale back their IT plans in response to funding difficulties and/or reduced prospects for their businesses.

 

Mitigation

 

We seek to ensure that a significant proportion of our revenues are derived from long-term contracts with our customers, that our products appeal to businesses operating in a range of business sectors and that payments for our recurring fees are received annually in advance.

 

 

Competitor activity

 

Risk

 

EDP operates in a competitive environment.

 

Potential impact

 

New entrants to our marketplace and actions taken by existing competitors could have an impact on our levels of business activity and product pricing in the market generally.

 

Mitigation

 

We endeavour to provide excellent customer support together with high quality products at a competitive price in order to develop and protect strong customer relationships.

 

 

Key employees

 

Risk

 

In common with all people-based businesses, our success will, to a significant extent, be dependent on the experience of the Board and senior management. The retention of the services of EDP's key employees cannot be guaranteed.

 

Potential impact

 

The loss of key employees could have a material adverse effect on EDP.

 

The failure to retain and develop key technical skills and product knowledge could hinder EDP's future prospects.

 

Mitigation

 

We are continually focused on the need to recruit, retain, reward and motivate staff with the appropriate skills.

 

 

Responsibility Statement of the Directors in Respect of the Half-Yearly Financial Report 

 

We confirm that, to the best of our knowledge:

 

the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union;

 

the half-yearly management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period; and any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

 

By order of the Board

 

J M Storey

 

Secretary

 

21 June 2017

 

The Directors at the date of this half-yearly financial report are:

 

Sir Michael Heller

Chairman (Non-Executive)

J.H. Wassell

Chief Executive

A.R. Heller

Non-Executive Director

C.R. Spicer

Network Services Director

J.M. Storey

Finance Director

 

 

 

Condensed Consolidated Income Statement

For the six months ended 31 March 2017



Unaudited six months to


Unaudited six months to


Audited full year

 to



31 March 2017


31 March 2016


30 September 2016



£'000


£'000


£'000








Revenue


2,538


2,505


4,958






















Gross profit


2,388


2,367


4,675








Administrative expenses


(2,226)


(2,179)


(4,368)








One-off property costs


-


(98)


(104)








Total administrative expenses


(2,226)


(2,277)


(4,472)








Operating profit


162


90


203








Write-down of property value


-


-


(10)








Finance income


18


26


51








Profit before tax


180


116


244








Income tax expense


(34)


(42)


(86)















Profit for the period attributable

to equity holders of the parent


146


74


158








Earnings per share







 - Basic


1.16p


0.59p


1.25p








 - Diluted


1.14p


0.58p


1.24p

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 March 2017



Unaudited six months to


Unaudited six months to


Audited full year

to



31 March 2017


31 March 2016


30 September 2016



£'000


£'000


£'000








Profit for the period


146


74


158








Other comprehensive income:







Items that will not be reclassified to profit or loss:







Remeasurement gains/(losses) on defined benefit pension scheme


809


(169)


(1,534)

Income tax on other comprehensive income



15


238








Other comprehensive income for the period, net of tax



(154)


(1,296)








Total comprehensive income for the period attributable

to equity holders of the parent


818


(80)


(1,138)








 

 

 

Condensed Consolidated Balance Sheet

at 31 March 2017


Unaudited at


Unaudited

at


Audited

at


31 March 2017


31 March 2016


30 September 2016


£'000


£'000


£'000

Non-current assets






Property, plant and equipment

1,277


2,545


1,343

Deferred tax asset

530


446


660

Intangible assets

428


428


464


2,235


3,419


2,467

Current assets






Inventories

93


81


79

Trade and other receivables

1,444


1,611


1,237

Investments

-


3,500


3,500

Cash and cash equivalents

6,682


1,857


1,902

Assets held for sale

-


-


1,167


8,219


7,049


7,885







Total assets

10,454


10,468


10,352













Current liabilities






Deferred income

(1,963)


(1,890)


(2,055)

Income tax payable

(130)


(115)


(87)

Trade and other payables

(1,436)


(1,313)


(1,009)


(3,529)


(3,318)


(3,151)







Non-current liabilities






Deferred income

(57)


(71)


(42)

Employee benefits

(3,116)


(2,475)


(3,883)

Deferred tax liability

(86)


(102)


(82)


(3,259)


(2,648)


(4,007)







Total liabilities

(6,788)


(5,966)


(7,158)













Net assets

3,666


4,502


3,194







Equity






Share capital

689


689


689

Share premium

119


119


119

Capital redemption reserve

625


625


625

Treasury shares

(542)


(587)


(587)

Retained earnings

2,775


3,656


2,348







Total equity attributable to equity holders of the parent

3,666


4,502


3,194

 

 

 

Condensed Consolidated Cash Flow Statement

for the six months ended 31 March 2017



Unaudited six months

to


Unaudited six months

to


Audited

full year

 to



31 March 2017


31 March 2016


30 September 2016



£'000


£'000


£'000

Cash flows from operating activities







Profit for the period


146


74


158

Adjustments for:







Depreciation


110


114


211

Amortisation


75


58


129

Net profit on disposal of property, plant and equipment


(5)


(15)


(11)

Write-down of property value


-


-


10

Transfer of inventory to property, plant and equipment


(10)


(6)


(5)

Defined benefit pension charge net of employer contributions


42


41


84

Finance income


(18)


(26)


(51)

Income tax expense


34


42


86

Change in inventories


(14)


(17)


(15)

Change in receivables


(243)


(173)


223

Change in payables


46


(65)


9

Change in deferred income


(77)


(104)


32








Cash received from/(used in) operations


86


(77)


860

Interest received


54


33


36

Income taxes received/(paid)


-


2


(78)

Net cash received from/(used in) operating activities


140


(42)


818








Cash flows from investing activities







Cash transferred from/(to) fixed-term deposit investments


3,500


(500)


(500)

Purchase of property, plant and equipment


(39)


(121)


(198)

Purchase of intangible assets


(2)


(19)


(35)

Capitalised development expenditure


(37)


(36)


(127)

Net proceeds from sale of property, plant and equipment


1,177


28


28

Net cash generated by/(used in) investing activities


4,599


(648)


(832)








Cash flows from financing activities







Issue of shares out of treasury


41


-


-

Dividends paid


-


-


(631)

Net cash generated by/(used in) financing activities


41


-


(631)















Net incease/(decrease) in cash and cash equivalents


4,780


(690)


(645)

Cash and cash equivalents at beginning of period


1,902


2,547


2,547

Cash and cash equivalents at end of period


6,682


1,857


1,902

 

In the period ended 31 March 2017, cash transferred from/(to) fixed term deposit investments has been reclassified in the cash flow statement as an investing cash flow from financing cash flows. The comparatives have also been reclassified.

 

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 March 2017






Capital








Share


Share


redemption


Treasury


Retained




capital


premium


reserve


shares


earnings


Total


£'000


£'000


£'000


£'000


£'000


£'000













At 1 October 2016 (audited)

689


119


625


(587)


2,348


3,194













Profit for the period

-


-


-


-


146


146

Other comprehensive income:












- remeasurement gain on defined benefit pension scheme












  net of tax

-


-


-


-


672


672

Total comprehensive income

-


-


-


-


818


818













Transactions with owners:












- issue of shares out of treasury

-


-


-


45


(4)


41

- share-based payment transactions

-


-


-


-


(6)


(6)

- dividends approved

-


-


-


-


(381)


(381)

Total transactions with owners

-


-


-


45


(391)


(346)

























At 31 March 2017 (unaudited)

689


119


625


(542)


2,775


3,666

























 

 

 






Capital








Share


Share


redemption


Treasury


Retained




capital


premium


reserve


shares


earnings


Total


£'000


£'000


£'000


£'000


£'000


£'000













At 1 October 2015 (audited)

689


119


625


(587)


4,115


4,961













Profit for the period

-


-


-


-


74


74

Other comprehensive income:












- remeasurement loss on defined benefit pension scheme












  net of tax

-


-


-


-


(154)


(154)

Total comprehensive income

-


-


-


-


(80)


(80)













Transactions with owners:












- share-based payment transactions

-


-


-


-


(1)


(1)

- dividends approved

-


-


-


-


(378)


(378)

Total transactions with owners

-


-


-


-


(379)


(379)

























At 31 March 2016 (unaudited)

689


119


625


(587)


3,656


4,502

 

 

 

Notes




1

Interim financial information


Electronic Data Processing PLC is a public limited company listed on the London Stock Exchange and incorporated and domiciled in England.

 


The condensed consolidated interim financial information was approved for issue on 21 June 2017.


The condensed financial information is not the Company's statutory accounts. The interim financial information

for the six-month periods ended 31 March 2016 and 31 March 2017 has not been audited. The comparative

figures for the financial year ended 30 September 2016 are not the Company's statutory accounts for that financial

year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies.

 


The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

2

Basis of preparation


The unaudited condensed consolidated interim financial information for the six months ended 31 March 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the EU. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 30 September 2016, which have been prepared in accordance with IFRSs as adopted by the EU.

 

3

Accounting policies


The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2016, as described in those financial statements.

 

The following new standards and amendments to existing standards became effective during the period to 31 March 2017 but had no material impact on this consolidated financial information:

 


- IFRS 10 (amended) 'Consolidated Financial Statements';


- IFRS 11 (amended) 'Joint Arrangements';


- IFRS 12 (amended) 'Disclosure of Interests in Other Entities';


- IFRS 14 'Regulatory Deferral Accounts';


- IAS 1 (amended) 'Presentation of Financial Statements';


- IAS 16 (amended) 'Property, Plant and Equipment';


- IAS 27 (amended)  'Separate Financial Statements';


- IAS 28 (amended)  'Investments in Associates and Joint Ventures';


- IAS 38 (amended) 'Intangible Assets';


- IAS 41 (amended) 'Agriculture'; and


- amendments resulting from September 2014 Annual Improvements to IFRSs.




The following new standards, amendments to existing standards and interpretations are not yet effective and have not been early adopted by the Group:


- IFRS 2 (amended) 'Share-based Payment';


- IFRS 4 (amended) 'Insurance Contracts';


- IFRS 9 'Financial Instruments';


- IFRS 15 'Revenue from Contracts with Customers';


- IFRS 16 'Leases';


- IAS 7 (amended) 'Statement of Cash Flows';


- IAS 12 (amended) 'Income Taxes';


- IAS 40 (amended) 'Investment Property';


- amendments resulting from Annual Improvements 2014-2016 Cycle; and


- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'.



4

Significant judgements, assumptions and risks


In preparing these interim results the main areas of significant judgements and estimates made by management in applying the Group's accounting policies are the same as those that applied to the accounts for the year ended 30 September 2016, namely:

 


 - employee benefits;


 - software intellectual property rights;


 - freehold property valuation and classification;


 - development costs; and


 - revenue recognition.




These estimates and associated assumptions are based on historical experience and other reasonable factors which form the basis of determining the reported values of assets and liabilities.

 


During the period the Directors updated the assumptions underlying the valuation of the defined benefit pension scheme under IAS 19.

 


As a result of the increase in corporate bond yields during the period, the discount rate used to calculate the present value of the scheme's liabilities was increased from 2.2% at 30 September 2016 to 2.6% at 31 March 2017. This was a significant item in the calculation of an actuarial gain of £672,000, net of tax, during the current period that has been recognised in Other Comprehensive Income.

 


In the six months to 31 March 2017 there have been no other changes to the estimates applied to the areas identified above that have materially affected the half-yearly financial information.

 

5

Segment information


The Group has identified its reportable segment based on the financial reports that internally are provided to the Group's Chief Operating Decision Maker ('CODM'). In line with its management structure, the Executive Directors collectively make the key operating decisions and review internal monthly management accounts and budgets as part of this process. Accordingly, the Executive Directors collectively are considered to be the CODM. The information reported regularly to the CODM presents the Group as a single segment supplying software and related services to customers operating in similar markets. The Group's software products share a common sales, development and implementation resource. Consequently the Group has determined that there is one operating segment and therefore one reportable segment, Software.

 


Segment performance is measured based on segment profit before tax excluding IAS 19 defined benefit pension scheme adjustments and profits or losses on property disposals or revaluations.

 

 



Unaudited six months to 31 March 2017


Unaudited six months to 31 March 2016



Software


Software



£'000


£'000






Revenue - external customers


2,538


2,505






Profit





Adjusted operating profit


260


240

Exceptional property costs - roof repair


-


(98)

Exceptional legal and professional costs


(39)


-

Segment non-cash IFRS (charges)/credits:





-       Capitalised development expenditure


37


36

-       Amortisation of capitalised development expenditure


(55)


(42)

-       Change in provision for holiday pay


1


(5)

Interest revenue


18


26






Segment profit before tax


222


157

Defined benefit pension scheme charge net of employer contributions


(42)


(41)






Consolidated profit before tax


180


116

 

6

Adjusted operating profit








Unaudited six months to


Unaudited six months to




31 March 2017


31 March 2016




£'000


£'000








Operating profit


162


90


Exceptional legal and professional costs


39


-


Exceptional property costs - roof repair


-


98


Adjustments for non-cash items:






-       Amortisation of capitalised development expenditure under IFRS


55


42


-       Capitalisation of current year development expenditure under IFRS


(37)


(36)


-       Defined benefit pension scheme charge under IFRS


42


41


-       (Decrease)/increase in provision for holiday pay under IFRS


(1)


5








Adjusted operating profit


260


240

 

The exceptional legal and professional costs shown in 2017 relate to expenditure associated with the Group's ongoing strategic review. In the opinion of the Directors these costs should be added back to statutory operating profit when assessing the trading performance of the Group.

 

7

Taxation


The current period taxation charge is derived from the Directors' best estimate of the annual tax rate applied to the result for the period.

 

8

Earnings per share


Basic earnings per share is calculated by dividing the profit after tax of £146,000 (2016: £74,000) by 12,621,855 (2016: 12,610,976) being the weighted average number of shares in issue during the period. Basic earnings per share is 1.16p (2016: 0.59p).

 


For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Company has one class of dilutive potential ordinary share, share options granted to employees under its Enterprise Management Incentive Share Option Plan. These shares have been included in the diluted earnings per share calculation.

 


Diluted earnings per share is calculated by dividing the profit after tax of £146,000 (2016: £74,000) by 12,781,537 (2016: 12,723,284) being the weighted average number of shares in issue adjusted for the effects of all dilutive potential ordinary shares. Diluted earnings per share is 1.14p (2016: 0.58p).

 

9

Dividends


The 2016 final dividend of 3.0p per share was approved by shareholders during the period to 31 March 2017 and a liability of £381,000 has been recognised in this half-yearly report.

 


The Directors announce an interim dividend of 2.0p per share (2016: 2.0p per share) payable on 1 August 2017 to shareholders who are on the register at 30 June 2017. This interim dividend, amounting to £254,000, (2016: £252,000) has not been recognised as a liability in this half-yearly report.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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