Annual Report 2011


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Preliminary Results for the year ended 31 December 2011


Sales and pre-tax profit at record high - and ahead of market expectations
Sales up 14% to £41.9m (2010: £36.7m*) - reflecting growth in all key markets in Europe, North America and Asia
  new sales high recorded in each of the last four half-year periods
  recurring income (from software maintenance and support contracts) rose by 12% to £13.1m (2010: £11.7m*), accounting for 31% of total sales
Investment in software R&D of £10.7m - will support ongoing expansion (2010: £9.6m)
Pre-tax tax profit up 55% to £3.73m (2010: £2.41m*)
Basic earnings per share up 28% to 40.7p (2010: 31.7p*)
Unrestricted net cash up 7% to £9.4m at 31 December 2011 (2010: £8.8m)
Final dividend of 5.25p proposed, (2010: 4.15p), taking total to 7.0p (2010: 5.5p), up 27%
Delcam is well-positioned to deliver improved trading results in 2012 if current trend continues

* 2010 comparatives have been restated to accurately reflect the Group maintenance income accounting policy (as detailed in note 4 of the Preliminary Report).


Chairman’s Statement

After a strong first half, with record sales and increased profits, I am pleased to report that the growth in both sales and profits continued in the second half of the year, despite the uncertainty created by the prevailing financial market turbulence. Trading throughout June to December 2011 was buoyant, especially in the fourth quarter, which is typically Delcam’s most active trading period and sales for the second half set a new high. The outcome for the financial year as a whole shows Delcam’s sales and pre-tax profits at record levels and results are above market expectations. Sales of £41.9m are 14% higher than the prior year and the second half sales performance means that Delcam has set new sales records in each of the last four half-year periods. Pre-tax profits at £3.73m show a 55% increase year-on-year.

The continued recovery in global manufacturing underpinned improved sales across Delcam’s key markets in Europe, North America and Asia. The results validate our continuing policy of investing strongly in product development and marketing in order to promote further growth of the business.

The Group’s financial position remains very robust, with strong cash generation and unrestricted net cash at the year end of £9.4 million. This total includes £0.9 million raised through the share placing to meet institutional demand from Herald Investment Management Limited in April 2011. Our strong financial position gives the business a healthy platform for further growth, both in absolute terms and in market share.

Financial Results

Sales for the year to 31 December 2011 increased by 14% to £41.9 million, compared to £36.7 million in 2010 (as restated). This reflected improved sales in most of our markets. While the largest increase was in software licence sales, as expected, maintenance revenues, derived from software maintenance and support contracts, also grew well at £13.1 million, up from £11.7 million in the previous year. Maintenance revenues now account for 31% of Group sales and continue to represent a predictable, recurring income stream.

Continuing our strategy to promote long-term growth, the Group invested strongly in product development. We invested £10.7million over the year, an increase from the £9.6million invested in 2010. In line with our long-standing policy, at least one new version of all of our main software products was released during the year. These enhancements were well received by our customers.

Profit before tax for the year increased by 55% to £3.73 million compared with £2.41 million generated during 2010 (as restated). Basic earnings per share improved by 28% to 40.7p against 31.7p in the previous year (as restated).

The balance sheet remains strong, with unrestricted net cash of £9.4 million at the end of the year, up by 7% compared to £8.8 million at the end of 2010.

Dividend

The Board is pleased to propose an increased final dividend of 5.25p per ordinary share (2010: 4.15p). This makes a total for the year of 7.0p per share (2010: 5.5p), up by 27.3% on last year. The final dividend will be paid on 14 May 2012 to shareholders on the Register as at 30 March 2012 (the ex-dividend date being 28 March 2012).

Pension

Last year we reported that the Company had closed its defined benefit pension scheme from 31 December 2010 with a commitment to pay £0.5 million each year for five years from January 2012 to January 2016. During the year movements in the stock market combined with a record low return on government gilts resulted in a significant increase in the scheme deficit. To protect the scheme’s funding position and take advantage of the lower stock market we accelerated our five year funding commitment by investing the £2.5 million into the scheme during the year, in addition to the £2.5 million that was paid in January 2011, making a total investment of £5.0 million. The IAS 19 valuation at 31 December 2011 recorded a deficit of £2.9m.

Review

The growth in sales seen since 2009 continued in 2011, with the further recovery in global manufacturing prompting increases in demand for both new software licences and maintenance contracts. The Group’s improved performance is evident in our traditional markets, in particular in the automotive and aerospace industries, as well as in our newer healthcare business.

Our strongest overall sales continue to come from the USA and Germany, while the fastest increase in sales of new software licences came from Asia, especially India, Indonesia, Korea and our direct sales in China. However, there were many global examples of significant growth, with 28 of our resellers achieving increases in their sales of more than 20%.

Delcam Professional Services, which was formed from the combination of our Professional Services Group and our Tooling Services Division at the start of the year, is showing an excellent performance. Demand for its process development and prototype manufacturing services continues to grow and we are investing in increased capacity in this area.

We have increased our investment in marketing as we focus on raising our worldwide profile. Our participation in the EMO World of Metalworking exhibition in September, the year’s largest exhibition for the machine tool industry, saw a record number of visitors to our stand. We are also continuing to expand the Group’s online presence, with improved websites for our major products and increased content being added to our online TV channel.

During the year, we acquired a minority stake in a new German software house, Fabbify Software GmbH. The company develops software for additive manufacturing, an area in which its management team has significant experience. Fabbify’s software complements our own software systems for machining and gives us exposure to an additional market sector.

Following our investment in our Beijing office in 2004, during this year we also purchased a new office in Chengdu, China. We believe that this additional investment will support sales across all our offices in China by demonstrating our long-term commitment to the country.

During the year, we also expanded our graduate recruitment programme. This will help to ensure that we can recruit sufficient high-quality development, sales and support staff to support our growth plans.

In July 2011, we were pleased to be confirmed as the leading CAM specialist globally (i.e. its primary business is focused on the provision of CAM software and services) for the eleventh consecutive year by CIMdata Inc, the independent global consultancy in its annual market report.

Outlook

Progress in 2011 was excellent, especially when allowing for the financial uncertainty which affected sentiment for investment in new technology in some countries. Despite our ongoing concerns over the financial background in Europe and the potential impact on our business of any further loss in confidence, the current indications are that 2012 should see continued investments in capital equipment and associated software in our key automotive and aerospace markets. At this early stage in 2012, we are continuing to see increases in our sales. With this encouraging start to the year, we anticipate that our trading results for the coming year should show further improvement over those for the last twelve months.

I would like to thank all our staff worldwide for their loyalty, hard work and dedication during the year, which enabled these record results to be achieved.

PETER MILES

Chairman

 


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