Cadcentre Group PLC Profits Increased By 9% In Year Ended 31 March 1999
Cadcentre Group plc ("Cadcentre"), the Cambridge headquartered leader in the international market for computer systems which aid the design of process and power plants, has announced its audited preliminary results for the year ended 31 March 1999.
Key points
Turnover moved ahead to £17.9m (1998 : £17.7m), including more high margin software, less low margin hardware.
Operating margins improved to 15.9% (1998 : 15.0%).
Earnings per share were up 11% to 11.41p (1998 : 10.30p).
Final dividend is being lifted to 3.2p (1998 : 2.4p), making a total of 4.8p (1998 : 3.6p) - an increase of 33%.
Cash flow remained strong with year-end net cash of £4.3m (1998 : £4.6m) after initial payment for acquisitions.
At the end of the financial year, Cadcentre acquired the rights to the 3D design software customer base of AEA Technology ("AEAT") for a consideration of up to $4.5m. A strategic alliance has also been formed with AEAT which broadens Cadcentre’s product offering.
Management changes after the year end include the retirement in the Autumn of Crispin Gray, Chief Executive, and the immediate appointment of Richard Longdon as Managing Director.
On outlook, Chairman, Richard King stated : "Moving forward, emphasis is being placed on generating increased software and services revenues. Immediate contributions to revenue growth will come from the customer base acquired from AEAT and the move to direct sales in the Far East. Product software licensing revenues are expected to reflect Cadcentre’s excellent and expanded range of products. Partnering agreements with our major customers are expected to lead to increasing levels of service and support revenues as well as higher revenues for each user of Cadcentre software. We are confident that these initiatives will enable Cadcentre to be able to report a satisfactory outcome for the year just started."
CADCENTRE GROUP PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 1999
Chairman’s Statement
I am pleased to report results which maintain the unbroken record of profits growth since before Cadcentre’s flotation in 1996. These results were achieved against a background in which purchasing decisions were influenced both by industry consolidation amongst our major customers and by IT spending being directed toward ‘Year 2000’ issues rather than new applications.
Results and dividends
In the year ended 31 March 1999, turnover increased to £17.9 million (1998: £17.7 million). Operating margins improved to 15.9% (1998: 15.0%) and profit before tax increased 9% to £3.00 million (1998: £2.75 million). Earnings per share were up 10.8% to 11.41p (1998: 10.30p).
In the past, the impact of the timing of major software licence sales has been highlighted, and in the year to March 1999, Cadcentre successfully signed up BASF in Germany during the first half year - ahead of original expectations. As a result, profits in the first and second half years were better balanced than in the past.
The relocation of a major customer from mainland Europe to the UK resulted in a slight reduction in exports to 82% of sales (1998: 84%). On a comparable basis, adjusting for the effect of this relocation, revenues for Europe, the Middle East and Africa increased by 5% and there were improvements in America and the Far East. UK revenues were down by 18%, reflecting quiet conditions in North Sea oil activity and an 80% reduction in commission from UNIX hardware sales.
A final dividend of 3.2p per share (net) is proposed (1998: 2.4p), making a total of 4.8p for the year (1998: 3.6p) - an overall increase of 33%. The final dividend will be paid on 6 August 1999 to shareholders on the register at the close of business on 16 July 1999.
Operations
Cadcentre’s marketing is being increasingly focused on regional representation through wholly owned sales and support offices. Breaking into the important chemical plant engineering market in Germany confirms the success of this model. A significant stream of additional business from BASF and its subcontractor chain is expected in the future.
As part of this increasing focus, in late November 1998 Cadcentre took full control of its sales and support operations in Japan by acquiring the Cadcentre business conducted by its distributor, KBK, for a consideration of ¥100 million (£500,000). Japanese and Far Eastern sales and support are now managed from Cadcentre’s own Yokohama office, aided by a satellite office in Korea, and revenues from the East Asia region are expected to improve significantly.
At the end of the financial year, Cadcentre acquired the 3D design software customer base of AEA Technology ("AEAT") and entered into a strategic alliance with AEAT which broadens the company’s product offering. This deal brings over 70 new 3D software customers (some 70% in the USA, 20% in Europe and the remainder in the Far East) and means that Cadcentre now has one of the world’s largest installed customer bases in high-end 3D plant design systems.
Of the total acquisition consideration of up to $4.5 million (£2.8 million), $1.5 million was paid shortly before the recent year-end. A second $1.5 million is offset against the sum due from AEAT in respect of maintenance revenues received in advance by them, but relating to the period after completion. The final payment will be equal to 25% of the annual support fees generated in 2000 from those 3D customers, capped at $1.5 million. The acquired customer base is currently generating support revenues of over $2 million a year - before allowing for any growth or upgrades. As the deal was completed at the year-end, contribution to revenue and profit commenced at the start of the year to 31 March 2000.
We are also collaborating with AEAT on a number of strategic product developments, including a new generation of schematic systems and intelligent links to their Hysys and Axsys chemical simulation suite.
Finance
Year-end cash stood at £4.3 million (1998: £4.6 million) after paying the first instalment under the AEAT agreement.
Board and senior management
Crispin Gray will retire as a Director and Chief Executive of Cadcentre in September 1999 when he will be 60 years old. Crispin joined Cadcentre in 1989 as director of the Process Plant Division. As Chief Executive he led the buy-out of Cadcentre in 1994 and the flotation of the company in 1996. We wish him well in his retirement from the board and are grateful that he is able to continue with us in the capacity of consultant.
In order to achieve a smooth transition in senior management, Richard Longdon, previously Sales and Marketing Director, became Managing Director with effect from 1 May 1999, assuming leadership of the Management Board and responsibility for all day-to-day operations of the Group.
Further appointments to the board, also with effect from 1 May 1999, are Tony Christian, Managing Director of Cadcentre International who is leading the group’s drive into the integration services business and Peter Littleton, President of Cadcentre Inc.
David Cheesman, who joined the Board at the time of flotation, retired as a non-executive director at the end of September 1998. We are grateful for his valuable input in our early days as a public company.
David Mann joined Cadcentre as a non-executive director on 8 June 1999 and brings considerable experience of the IT services industry to Cadcentre, including 25 years with Logica plc, where he became head of worldwide operations, then Group Chief Executive and finally Deputy Chairman before leaving in 1994. He is also a director of Druid Group plc, Industrial Control Services Group plc and Flomerics Group plc.
Outlook
During the past two years, profits have increased much faster than revenues. In part this reflects a change in mix with reducing hardware sales being replaced by software and services with higher profit margins.
Moving forward, emphasis is being placed on generating increased software and services revenues. Immediate contributions to revenue growth will come from the customer base acquired from AEAT and the move to direct sales in the Far East. Product software licensing revenues are expected to reflect Cadcentre’s excellent and expanded range of products. Partnering agreements with our major customers are expected to lead to increasing levels of service and support revenues as well as higher revenues for each user of Cadcentre software.
We are confident that these initiatives will enable Cadcentre to be able to report a satisfactory outcome for the year just started.
Richard King
Chairman
14 June 1999