Brady grows 1H revenues, cuts losses, flags return to profits
Brady plc (BRG.L), supplier of commodity trading software, said today its revenues for the six months to 30 June were up 12.3% at £1.7m and that its pre-tax loss were down to just below £0.2m from almost £0.3m.
Chairman Graham Simister said the first half of 2006 saw a much improved level of new contract wins with the signing of three new Trinity license sales – its flagship product - and two Opval license sales, after a disappointing 2005.
Also in July, following the end of the half year, the company announced a further Trinity sale.
However, the better sales don’t have an immediate effect on the bottom line, as licence revenue is not recognised until the systems are delivered in a substantially complete form. This is reflected in the loss for the first half, a result that includes amortisation of employee stock options for the first time.
The stock market response was cool. Brady shares shed 1.85% to 26.50p each, valuing the company at £6.7m
Mr Simister said the benefits of recent license sales should start to be seen in the second half, when a return to profitability is expected, and in 2007, as the systems are delivered and the revenue is recognised.
“So that investors can understand the performance of the business better I would like to provide further detail on the recent new license agreements”, he said in a statement to the London Stock Exchange.
“The four new Trinity contracts signed so far in 2006 have an aggregate contract value based on current scoping of £1.6m. In addition a further £0.2m of Trinity license sales have been made to existing customers and approximately £0.3m of Opval sale have been made in the same period.
“No licence revenue has been recognised in the first half of 2006 for any of the new Trinity sales under the company's accounting policies despite over £0.5m having been invoiced. This revenue will only be recognised once the system has been delivered in a substantially complete form, the timing of which is dependent on client scheduling and integration with existing systems.”
Modified revenue base
He said that Brady’s performance would always be dependent on the level of new Trinity sales, but that it was working to reach a position where the cost base of the business was substantially covered by revenues from regular maintenance, and professional services and development for existing customers, which have historically been more predictable than new licence sales.
“We hope to be much closer to achieving this position in 2007 and the increase in new Trinity users from the recent contract wins will assist in this respect”, he said.
The litigation with a former customer, Sempra Metals is still underway. As previously reported, Sempra is seeking damages of £3.1m with interest and costs for alleged breaches of contract by Brady regarding a software development contract. Brady has counter claimed for fees payable under the contract and damages in the order of £2.9m.
Mr Simister said the board doesn’t regard the litigation as a threat to the business and hopes the matter will be resolved with a further payment to the company that it believes is due under the contract, although “this is clearly not certain”. All legal expenses are being expensed as incurred, though the company hopes to be able to recover them.
Brady said its tasks in the remaining months of 2006 were to manage the implementation of sales made to the “ever-higher standards” that its market demands and to continue to secure new contracts.
To ensure it can meet the level of anticipated demand Brady has hired a number of additional people.
With its Trinity version 600 software now successfully installed and in use and a good level of new business already signed this year and further promising leads in the pipeline, it says the outlook “is much improved from this time last year”.
12th September 2006
