Delcam Plc Interim Report 2010

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Interim Results for the six months to 30 June 2010

  • Significant improvement in trading results
  • Sales up 12% to £18.1m (2009: £16.1m) – driven by recovery in demand for software across all major markets, especially in Asia and South America
  • Predictable, recurring income, derived from software maintenance and support contracts, rose to £6.3m (2009: £5.8m) and now accounts for 35% of total sales
  • Strategic decision to maintain investment in software R&D during recession for market advantage - £5.0m invested in the period (2009: £4.7m)
  • Pre-tax tax profit up substantially to £1.1m (2009: £0.3m)
  • Basic earnings per share up to 11.6p (2009: 3.2p)
  • Net cash increased by 12% to £6.5m (2009: £5.8m)
  • Interim dividend maintained at 1.35p (2009: 1.35p)
  • Board remains confident of Delcam’s ability to build market share during recovery

Chairman’s Statement

I am pleased to report a strong recovery in Delcam’s sales and profits in the first half of the current financial year.  Sales have increased by 12% over the same period last year to £18.1 million and stand at a record high for a six month period.  Pre-tax profits are substantially higher at £1.10 million and represent an improvement of approximately £0.79 million on the first half of last year. These encouraging results reflect recovery across all our major territories globally and were supported by our decision to maintain investment in product development and marketing during the downturn in order to gain commercial advantage.  

The Company’s financial position remains robust, with substantial net cash at the period end.  This leaves the business well placed to see out the challenges that still exist in our global markets and supports our long term ambitions to grow our market share further.  

Financial Results

Sales for the six months to 30 June 2010 increased by 12% to £18.1 million compared to £16.1 million in the first half of last year.  The increase was principally driven by an improvement in software licence sales. Maintenance revenues, derived from software maintenance and support contracts, contributed £6.3 million to the total, up from £5.8 million in the first half of last year.  Maintenance revenues continue to represent a predictable recurring income stream and accounted for approximately 35% of overall revenues.

In line with our strategy, the Company continued its investment in product development and we invested £5.0 million (2009: £4.7 million) over the period.

Profit before tax for the first half rose to £1.10 million, a substantial improvement on the £0.31 million generated in the first six months of 2009.  Basic earnings per share also improved significantly, to 11.6p against 3.2p in the equivalent period of last year. 

The balance sheet remains strong, with net cash of £6.5 million at the period end (2009: £5.8 million). 

Dividend

We are pleased to declare an interim dividend of 1.35p per ordinary share (2009: 1.35p).  This will be paid on 17 September 2010 to shareholders on the Register as at 27 August 2010.  The ex-dividend date is 25 August 2010.

Review

The partial recovery in global manufacturing has benefited the sales of new software licences and the take-up of maintenance contracts across the full range of Delcam’s CAD/CAM products.  We saw software licence sales growth across all our major markets, including North America and Europe, which continue to be our largest markets.  The most significant sales increases were in Asia and South America, where licence sales rose by 48% and 50% respectively.  Our new subsidiary in Poland, established in the third quarter of 2009, has made a promising start.

In most regions, sales of new licences have shown higher growth than our income from software maintenance and support services from our existing customers.  This reflects the lower level of new licence sales last year, rather than any reduction in the high value that our users place on these services.  I am pleased to report that the latest releases of all our software products have been received well by our customers. 

Sales of our software products for the healthcare market, a newer market for us, continued to show encouraging growth.  This reflects the increased proportion of our development and marketing resources devoted to them, as well as the growing demand for CAD/CAM systems within the various sectors we are targeting within the healthcare market. Like our more established engineering customers, companies in the healthcare industry are able to use our software and services to reduce their production costs, shorten their lead times, and improve the quality and consistency of their products.

Delcam’s Professional Services Group has continued to develop, both in the original UK operation and from our newer offices in France, the USA and Singapore.  The Tooling Services Division, which is currently reliant on the aerospace industry as its main source of projects, saw reduced demand for its services.

We were pleased to receive the Queen’s Award for Enterprise in the Innovation category in recognition of the continuous development of our software for the design and manufacture of dental restorations.  This latest recognition for the Company follows the receipt of similar Queen’s Awards for ArtCAM in 2003 and for PowerINSPECT in 2004, and provides further evidence of Delcam’s success in developing innovative technology.

Outlook

First half results were very pleasing but while the global economic environment has improved significantly, as evidenced in our trading figures, there is still some uncertainty over the strength and durability of the recovery, and over the potential impact of reduced government spending in some countries.  Reflecting this uncertainty, many companies are continuing to postpone their investments in capital equipment and the associated software purchases. As we look ahead over the remainder of the year, while we are very encouraged by the Company’s trading performance in the first half, the ongoing improvement in sales and profitability will be materially influenced by the final quarter of the year, which is our most important trading period, historically. At this early stage in the second half, we remain optimistic that the improving trend will continue and if this remains the case, we would expect trading results for the year to 31 December 2010 to show a significant improvement on results for 2009.    

Peter Miles
Chairman
16 August 2010