Brady's sales slump in 2005 as product update rollout delayed
Commodity trading software supplier Brady plc (BRY.L) reported a 50% fall in sales for the year to end December, as the roll out of its key product upgrade was delayed by changes to specifications sought by a major customer.
The slump in sales to £2.4m from £4.8m in 2004 translated into an operating loss for the year of £1.2m compared to 2004's profit of £1.8m. The retained cash balance was a relatively healthy £3.6m at year end.
The company's share price shed 20% to reach 17p on small trading volumes by mid morning before Chairman Graham Simister stepped into the market and bought 100,000 shares at 18p each, lifting his stake to 1.9 million shares or 7.4%. It recovered to 19p by mid afternoon to be 11% down on the day.
Of the result Mr Simister said, "The company started 2005 with a great deal of optimism, but the year clearly did not go the way we hoped.
"We believe we have firmly grasped the challenges presented to us, and acted to make changes, and to protect the business. Our task for 2006 must be to concentrate on rolling out Trinity version 600 to our existing clients; continue to enhance it; and to sell it to our pipeline of potential new clients. It is pleasing therefore to have been able to report our first sale of Trinity V600 earlier this month."
Brady was founded by CEO Robert Brady in 1985. Its main product, a software packaged called Trinity, is targeted at the metals and mining industry and is installed with producers, merchants, banks, brokers and end users around the world.
At the time of the last annual report the board was confident the company had excellent prospects of completing several major new license sales, particularly as it was releasing the latest Trinity package, version 600, in the third quarter.
But, Mr Simister said, "With the benefit of hindsight the new version of the system was being slowed down by numerous changes to specification for one of our launch customers." He alleges that these changes slowed development and increased costs substantially whilst not resulting in corresponding recognised revenues during the year.
Legal dispute
Now, there is a legal dispute relating to this project.
Sempra Metals Ltd (a London-based trading and broking firm) issued a claim form against Brady in the High Court of Justice, London on 29 December seeking damages of £3.1m with interest and costs. The claim relates to alleged breaches of contract by Brady regarding a software development contract. Brady said a substantive defence is being prepared and that it intends to counter claim for fees payable under the software contract and damages in the order of £2.9m.
The company also said, in a note to its financial statement: "As to the value of Sempra's claim, the software contract contains a provision limiting the Company's liability to the total licence fees paid by Sempra, namely £577,500. Further, the company maintains indemnity insurance for claims and legal expenses associated with errors and omissions arising under software contracts."
The company claims the delay in the release of Trinity version 600 also contributed to its failure to close other business from its pipeline. "Potential customers adopted a wait and see position and business that we would normally have expected to close had we not announced we were about to release a new version of our main product remained open", Mr Brady said. A recent sale of version 600 to a major copper producer, since the year end, is expected to go some way to rectifying this situation.
If all goes to plan Mr Simister believes "we can return to profitability and growth after a frustrating pause in 2005."
21 March 2006
