21 March 2016: Brady plc announces preliminary results for the year ended December 2015

21 March 2016: Brady plc announces preliminary results for the year ended December 2015
Brady plc (BRY.L), a global provider of trading, risk management and settlement solutions to the energy, recycling and commodities sectors, is pleased to announce its unaudited preliminary results for the year ended 31 December 2015.

Financial Summary

2015

Unaudited

2014
£’000 £’000

Total revenue 27,374 31,015
Recurring revenue 15,249 15,848

EBITDA before exceptional costs1 2,450 6,288
Operating profit after exceptional costs3 (1,428) 1,031
Operating profit before exceptional costs (959) 3,174

Profit (Loss) after Tax after exceptional costs (1,726) 459
Profit (Loss) after Tax before exceptional costs (1,257) 2,852

Dividend proposed (pence per share) 0 1.85
Basic earnings per share (in pence) (2.09) 0.56
Adjusted earnings per share (in pence)2 0.98 5.31

Cash and cash equivalents 6,594 9,580

1EBITDA before exceptional costs comprises operating profit before depreciation, amortisation and exceptional costs

2Adjusted earnings per share is based on earnings excluding exceptional items, acquired intangible asset amortisation charges and share based compensation charges and at a consistent normalised tax rate assumed to be 15%.

3 The majority of the 2015 exceptional item comprises re-structuring costs and the majority of the 2014 exceptional item comprises a non-cash impairment charge against goodwill.

4 Consistent currency numbers are calculated by translating the 2015 result at the same exchange rate as those used in the 2014 results.

Operational Highlights

20 new contracts, including two substantial contracts with market leaders, in line with previous year
Weak market conditions following the collapse in global commodity prices
Cloud revenue growth +60%
Energy division stabilised with constant currency revenue broadly flat and improved contribution to 26% from 22%
Major investment (£1 million) in the new concentrates system functionality attracting major client interest
Acquisition of ScrapRunner to strategically enhance Recycling division
Acquisition of energycredit, in January 2016, to enhance product functionality and establish off-shore development capability
Financial Highlights

Revenue down 12%, or down 7% on constant currency basis
Loss before tax of £1.4m (2014: £1.1m profit)
Costs reduced by £2m from start of 2016 in order to maintain margins and potential for market recovery
Exceptional restructuring and non-recurring costs £0.5m (2014: £2.4m)
Net cash at year end £6.6m (2014: £9.6m) Recurring revenues 56% (2014: 51%)
Chairman’s Statement

Market conditions were weaker than expected in the second half of the year and revenue for the year of £27.4 million was down on last year (2014: £31.0 million). 2015 saw a further 30% decline in commodity prices, following the downgrade of Chinese growth expectations, which impacted customer confidence and led to a deferral of expected contract decisions towards the end of the year.

In constant currency terms, revenues were down £2.3 million, due to lower licence sales. Organic revenues declined by 12% of which 4% was as a result of foreign exchange movements. The mix of revenues improved with recurring revenues up 5% to 56%.

As a consequence the Group achieved an EBITDA before exceptional items lower than originally forecast at £2.5 million compared to £6.3 million for 2014. Loss after tax (before exceptional items) was £1.3 million (2014: £2.9 million profit) and loss after tax (after exceptional items) was £1.7 million (2014: £0.5 million profit). Operating cash flow in the year was £1.9 million and net cash at year end was £6.6 million (2014: £9.6 million).

Towards the year end we initiated further overhead savings of £2 million per annum annualised. The redundancy costs associated with this reorganisation were £0.4 million. Following the reorganisation the Group has aligned resources more efficiently by investing in the business units with higher contracted growth, providing an effective platform for profitable growth in 2016.

The move towards cloud based services continued, with nine deals being cloud deployed compared to six last year. We are on course to having over 50% of new contracts delivered via the cloud. This also has the benefit of increasing our recurring revenue.

The Commodities division signed a global deal with one of the top commodity trading companies for refined and concentrates (ores). The Recycling division signed a substantial contract with the world’s leading recycling company for their AAPAC business, our first recycling deal outside of the Americas. The Board believes that both of these deals underline our leadership in all aspects of metals.

Brady’s strategy remains to provide integrated trading and risk management solutions to commodity, energy and recycling companies. The Energy & Commodity Trading & Risk Management software market is estimated to be a $1.6 billion per annum spend. Brady has demonstrably taken more market share in the last four years as competitors struggle under the weight of highly leveraged balance sheets and tough market conditions.

People

I would like to thank all of our directors and employees for their efforts during a very busy year. In particular, on behalf of the Board, I would like to thank Robert de Picciotto who leaves the Board at the end of April for his significant contribution to the development of the Group over the past five years as an executive and then non-executive director. The commitment, loyalty and hard work of the team continue to be very much appreciated and their teamwork will be crucial in delivering the major new projects in 2016 and beyond.

Clients

The Group appreciates the support from our client base. In the last seven years the number of clients has increased from 50 to more than 400, including many of the leading names in the industry. The geographical spread of the Group’s revenues now comprises £19.8 million in EMEA, £6.2 million in the Americas and £1.4 million in Asia.

Dividend

During this period of market uncertainty the Board believes it is prudent to suspend the normal dividend payment and maintain our strong balance sheet. This decision will be reviewed as the commodity markets recover and we return to our progressive dividend policy.

Looking Ahead

The impact of the restructuring of costs achieved in 2015 together with tight control of ongoing costs should result in significantly higher profitability in 2016 and beyond.

Although the overall market outlook remains uncertain, the Board is confident that Brady will continue to take market share demonstrated by its ability to sign and deliver increasingly large contracts with global leaders and its strong list of referenceable customers who already rely on Brady systems to run their businesses.

Brady operates in a large, global market: everybody on the planet is reliant on commodities and energy; the recycling market is growing strongly; and Brady continues to be well placed for profitable growth.

Paul Fullagar

Chairman

Chief Executive’s Review

In the first half of the year we signed major contracts with leading companies, including one of the top four global commodity companies and the world’s largest recycling company. The third quarter saw the commodity and energy markets respond to expectations of an increased slowdown in demand from China, which continued to underpin the market weakness and further drive commodity prices down. Consequently several contract decisions were deferred.

Despite these deferrals, in the full year, 20 new deals were signed, including nine deployed in the cloud, resulting in a 60% increase in cloud revenues over the previous year. Accordingly we are on target for 2016 as we reinforce the cloud as our default method of delivery and aim for more than 50% of deals to include our Cloud Services.

In 2015 much of our focus was on strengthening the project delivery to maximise the profitability of projects, which resulted in 27 major projects and go-lives, including our first cotton client in the USA, an aluminium company based in Bahrain which went live in eight months following an unsuccessful project attempt by a competitor, which was shelved after five years, a recycling company in Ohio, West Virginia and the largest power producer in Norway went live with our web-based client reporting solution.

Major new strategic investments were made in new technology solutions. In the metals industry we have invested heavily in new concentrates/ores functionality and released the first version to a large customer. 15% growth in Energy Data Management was driven by our product enhancements in anticipation of major changes in the Nordic Balancing and Settlement market; and the recycling market has benefited from enhanced handheld inspection devices which we have started to roll out across our 1000+ recycling sites.

The Company initiated a cost reduction plan at the end of the year and has firmly embedded a programme to de-risk the business model.

Brady Energy

The Energy business continued to demonstrate positive momentum in 2015, securing eight new contracts which includes the addition of four new clients: a Norwegian energy utility which selected Brady to manage its renewable energy trading and risk management operations: a French multinational company which will deploy Brady to manage its power plants’ tolling agreements: and a joint venture by two of the world’s largest international energy companies resulted in Brady being selected to support their combined cycle gas turbine, one of the world’s most flexible and efficient gas-fired power plants.

The division also continued to deliver on its strategy to rationalise its solution set and integrate further to deliver a more comprehensive and cost-effective solution suite.

The division successfully delivered implementation projects resulting in 10 go-lives, including five contracts that were signed earlier in the year and two implementations of the first release of Brady’s integrated pan-European power scheduling and balancing solution.

Commodities

Sales highlights include major contracts signed with one of the world’s largest commodity companies and the brokerage division of a large Japanese multinational, covering base and precious metals and agricultural commodities. Despite the challenging bear markets, Brady Commodities signed four new start-up commodity trading companies which selected cloud-based solutions for cotton, metals and concentrates trading and risk management. This highly diverse selection of new clients highlights our leadership across the metals and agricultural markets.

Major go-lives include a global trading company for cotton. Our hedge manager solution, a packaged, out-of-the box solution for hedging and risk management for fabricators, successfully went live at two sites. Two more existing clients were migrated to our cloud solution.

Product highlights include a major update to our concentrates and ores solution, providing, the Board believes, unrivalled functionality in this market; extension to capabilities for derivatives traders and risk managers, including massive performance improvements, extending out real-time position and P&L screens, stress testing, as well as the addition of a real-time limits module for trading and credit limits. Other areas of focus include premium risk management, regulatory reporting for MIFID, EMIR, FMIA, OTC clearing and streamlining deal flow through, from placed orders through automated confirmation, to settlement.

Recycling

A significant milestone for the Recycling unit was being selected by the world’s largest recycling company, which took the decision, as part of the Group’s larger plan to standardise all its global operations, to implement Brady in all its facilities in Australia, New Zealand, Tasmania and New Guinea. The team additionally successfully implemented its enterprise solution at a ferrous scrap brokerage organisation located throughout the US.

Product launches came to the fore in 2015, with the rollout of three significant mobile applications: the Hand Held Mobile Inspection Management system, the Export Container Image Management system and the Buyer Work Bench, as well as the Automated Mill Weight and Cash Application module. All of these developments bring significant return on investment to recycling companies looking for flexibility and increasing efficiency in their yards, whilst keeping costs firmly under control.

The acquisition of ScrapRunner in September 2015 added the required functionality to Brady Recycling’s suite of solutions to enable scrapyards to optimise their dispatch and container management processes. Work is already underway to integrate the solutions, to drive increased licence revenues.

Technology Initiatives
Brady Web Framework has been further cemented as the core for next generation application and service development for the Group. 2015 saw more consumers and contributors moving to this framework than ever before, as well as the extension of its capabilities for web portal and mobile development. The latter was showcased at our Customer Advisory Board and is already being used for the exciting development of a handheld device. Wider and more extensive use of our Common Framework across the Group and in all divisions is planned for 2016.

Four new services, Assay Exchange, Contract Rules, Limits and REMIT, have been added to increase our SOA inventory to 29 services. In 2016 we are planning more new SOA services, including SPAN Margining and Alert and Notification services.

We significantly strengthened our domain knowledge and widened our overall offering to our clients through the acquisitions of ScrapRunner, a dispatch solution designed for the Recycling market, followed by the acquisition in December of energycredit, an enterprise-wide credit risk solution. Apart from providing Brady with a complementary technical solution, this provides an offshore capability in India which the Board expects will be strategically important to Brady in the coming years.

Market

Looking forward to 2016, the trading conditions for a number of our clients could remain challenging. We are focused on providing value propositions that help our clients reduce their costs, meet the increasing demands of the regulators, consolidate suppliers and displace competition that provides poor customer satisfaction.

Growth Drivers
Significant growth areas include:

Cost efficiency for the recycling market
Cloud deployed, cross commodity solution
An enterprise-wide solution for the Energy market
Looking forward to 2016, the Commodities team will focus on its Base Metal and Raw Material solution, with a new release of concentrates for metal traders, transporters, miners, producers. Brady Cotton is a unique solution able to handle the nuances of US cotton down to the bale level and fully integrates with the most common tools EWR, AMS, eCotton, The Seam.

The energy markets across Europe continue to evolve in a period of fundamental market standardisation across the established geographies. In the Nordic region, 2016 will see the rephased rollout of the Nordic Balance Settlement (“NBS”) system, designed to standardise settlement across the three Nordic countries, and preparation for El Hub in 2017. Additionally, the deregulation of the markets in South Eastern Europe opens up new opportunities for market participants in the supply of additional cross-border capacity.

The inherent complexity of renewable energy sources and the resultant importance of intraday and cross-border trading, coupled with the need to deliver highly cost-effective solutions to a market facing tight market conditions, remain the key focus for the division in 2016.

The Recycling team are focused on cost efficiency employing handheld inspection, logistics optimisation to drive down costs and provide a significantly improved ROI.

Summary and Outlook
We are looking to increase our market leadership in metals and drive more growth in agricultural products.

Our strategy is to be world leaders in Recycling. Having signed our first major deal in the Asia Pacific region, we are now looking at further opportunities to drive international growth.

The Energy business has made very good strides in 2015 and has delivered the most profits across the Group. For 2016 we need to retain our dominance in the Nordics, extend our geographic footprint, and drive larger sales by articulating and demonstrating our strategy to provide an overarching solution.

Our teams that work in cross-group roles are working towards increased efficiency and transparency through consolidation of systems and introducing best practices and common workflows across the Group.

In 2016 we will be working with the team to roll out and embrace our corporate values which will define the way in which we conduct ourselves both internally and externally:

Integrity, People, Innovation, Excellence, Customer Satisfaction and Collaboration

Spending time with the team reinforces to me that we have a world class company, and despite challenging market conditions, we are gaining relative market share.

Gavin Lavelle

CEO

Brady plc

Financial Review
Foreign Exchange Rates

Foreign exchange rates have moved significantly between 2014 and 2015 for several of the currencies in which Brady both generates revenue and incurs costs. The most significant currency pairs are: sterling and the US dollar, sterling and the Norwegian krone and sterling and the Swiss franc. Sterling weakened 7% against the US dollar and 3% against the Swiss franc and strengthened 19% against the Norwegian krone.

Group Trading Performance

In order to enable a better appreciation of the business performance in the underlying currencies Brady has provided details of revenues in both actual and consistent currency. Consistent currency numbers are calculated by translating the 2015 results at the same exchange rate as those used in the 2014 results.

Revenue Mix

The revenue composition is summarised in the tables below:

2015

£ million

%

2014

£ million

%

Licence revenues 5.2 19% 7.5 24%
Recurring revenues 15.3 56% 15.9 51%
Services and development revenues 6.9 25% 7.6 25%
Total revenues 27.4 100% 31.0 100%

At consistent currency:

2015

£ million

%

2014

£ million

%

Licence revenues 5.2 18% 7.5 24%
Recurring revenues 16.2 56% 15.9 51%
Services and development revenues 7.3 26% 7.6 25%
Total revenues 28.7 100% 31.0 100%

Total revenue declined by 11.6% at actual exchange rates and by 7.4% in consistent currency. Organic growth in revenue at actual exchange rates fell 12.3% against 6% growth in 2014. At consistent currency, organic growth declined by 7.4%. The acquisition of ScrapRunner in September 2015 added £0.2 million to recurring revenue in the Recycling business unit.

In 2015 licence revenues decreased 31% to £5.2 million from £7.5 million in 2014.

Total recurring revenue declined by £0.6 million (or -4%). At consistent currency rates, total recurring revenue grew by £0.3 million (or 2%). Organic recurring revenue declined by £0.8 million (or -5%), from £15.9 million (2014) to £15.1 million (2015). At consistent currency rates, organic recurring revenue grew by 1% to £16.0 million from £15.9 million.

Services and development revenues decreased 9% to £6.9 million from £7.6 million. At consistent currency services and development revenue decreased 4% to £7.3 million from £7.6 million.

Trading performance by business unit (before exceptional items)

The revenue and contribution by business unit, prior to any allocation of central and shared costs and amortisation of intangible assets, are summarised below:

Revenues Contribution

2015

£ million

2014

£ million

2015

£ million

2014

£ million

Brady Commodity business unit 12.4 14.4 3.6 5.9
Brady Energy business unit 10.8 12.6 2.8 2.8
Brady Recycling business unit 4.2 4.0 0.1 0.8
27.4 31.0 6.5 9.5
In consistent currency:

Revenues Contribution

2015

£ million

2014

£ million

2015

£ million

2014

£ million

Brady Commodity business unit 12.2 14.4 3.6 5.9
Brady Energy business unit 12.5 12.6 3.3 2.8
Brady Recycling business unit 4.0 4.0 0.1 0.8
28.7 31.0 7.0 9.5
Brady Commodities

Revenue decreased 14% in 2015 to £12.4 million compared to £14.4 million in 2014. In consistent currency the decrease was 15% from 14.4 million (in 2014) to 12.2 million (in 2015). The contribution margin was 29% (2014: 41%).

Brady Energy

Revenues decreased 14% in 2015 to £10.8 million compared to £12.6 million in 2014. However, there was a large currency effect in this and, in consistent currency, revenues decreased by 1% from £12.5 million to £12.6 million.

The business unit contribution margin was 26% (2014: 22%).

Brady Recycling

Total revenue increased 5% in 2015 to £4.2 million compared to £4.0 million in 2014. In consistent currency revenues were flat. Organic revenue was flat year on year at actual currency rates and declined by £0.2 million (5%) in consistent currency. The acquisition of ScrapRunner contributed £0.2 million of revenue at both actual FX rates and consistent currency. The contribution margin was 2% (2014: 20%).

Gross margin

The overall gross margin decreased to 60% from 65%.

Profitability

EBITDA (earnings before interest, tax, depreciation and amortisation) before exceptional items decreased to £2.5 million (2014: £6.3 million).

Operating profit before exceptional items and tax decreased to a loss of £1.0 million (2014: £3.2 million profit). Profit before exceptional items after tax decreased to a loss of £1.3 million (2014: £2.9 million profit).

Research and development expenditure

Total research and development spend amounted to £6.7 million (2014: £7.3 million). Of this, £4.7 million was expensed (2014: £5.5 million) and £2.0 million (2014: £1.8 million) was capitalised. Capitalised development which is referred to internally within Brady as strategic software development (SDD) represents large strategic developments of either significant new modules or functionality. These projects are selected and approved by the Board as part of the business planning and budget process. The largest single capitalised project in 2015 was £1 million in respect of the development of a concentrates module for the Fintrade product. This allows a customer to trade refined and unrefined metals, concentrates, raw materials, softs and agriculturals all on one platform and giving Brady a unique position in the market. SDD for 2016 is expected to be £0.5 million less than in 2015.

Exceptional items

The exceptional item comprises two items:

Corporate finance and legal costs associated with the acquisition of ScrapRunner, totalling £122,000, and
Reorganisation costs incurred in the November and December cost cutting exercise. The reorganisation costs comprise mainly redundancy costs spread across all business units and group functions and total £347,000.
Finance income

Interest income from the Group’s cash resources was £31,000 (2014: £58,000).

Income tax

The overall tax charge for the year was £0.3 million (2014: £0.4 million before exceptionals). Although a proportion of profits is being generated in higher taxed jurisdictions such as the US, Norway and Switzerland, the Group continues to benefit from the attractive research and development tax credit regime in the United Kingdom. The Group also inherited unutilised tax losses following its acquisition of Navita and the Group has benefited from deferred tax credits associated with the amortisation of acquired intangible assets and capitalisation of development costs. The Group retains unused tax losses of approximately £13.0 million which are expected to be available to offset against future taxable profits.

Earnings and dividends

After including the exceptional charges, profit before tax decreased to a loss of £1.4 million (2014: £1.1 million profit) and profit after tax decreased to a loss of £1.7 million (2014: £0.5 million profit).

The weighted average number of shares in issue increased to 82.7 million (2014: 81.3 million). Adjusted earnings per share, as calculated by market analysts, adjusted to exclude share based payments, amortisation of acquired intangible assets, exceptional items and, assuming a consistent normalised tax rate of 15%, decreased to 0.98 pence per share (2014: 5.31 pence per share).

The Board does not propose a dividend for the year.

Share issues

1,637,003 (2014: 549,000) share options held under the Company’s share option schemes were exercised. The exercise proceeds following the exercise of these share options were £719,000 (2014: £338,000).

Treasury shares

The total number of ordinary shares held in treasury during the year remained at 4,306.

Acquisitions

On 4th September 2015 the Group acquired the assets and goodwill of the ScrapRunner product, from Enaptive Inc a USA based company providing dispatch systems designed specifically for the scrap metal and recycling industry markets. The purchase price was $1.8 million (£1.2 million) in cash. The fair value of assets and liabilities acquired comprised: intangible assets £0.8 million, trade and other debtors £0.2 million, trade payables and deferred revenue £0.3 million, deferred tax £0.3 million and goodwill of £0.8 million. Revenues in the period from acquisition to 31 December 2015 were £0.2 million and profit before tax was £0.01 million.

No acquisitions took place during 2014.

Balance sheet

The Group continues to retain a strong balance sheet, with significant cash reserves and no debt.

Non-current assets

Goodwill decreased to £17.2 million from £17.6 million. This is the net movement between the addition of £0.8 million for the ScrapRunner acquisition and foreign exchange movements on retranslation (£1.2 million).

Acquired software decreased to £4.4 million from £5.8 million and acquired client contracts decreased to £2.2 million from £2.4 million as a result of additions from the ScrapRunner acquisition less amortisation during the period and foreign exchange movements on translation.

As required by IAS38 Intangible assets, the Group capitalised £2.0 million (2014: £1.8 million) of expenditure in relation to strategic software development programmes. The Group has a continued commitment of enhancing and expanding its offerings and taking its technology forward. The bulk of expenditure incurred during the year on research and development was, however, expensed as incurred. Net of amortisation to date, the book value of capitalised development costs increased to £6.0 million (2014: £5.2 million).

A deferred tax asset of £0.5 million has been recognised in relation to historic tax losses acquired in Norway. These losses are anticipated to be available for set-off against future trading profits.

Current assets

Trade and other receivables decreased to £5.7 million (2014: £6.2 million) and accrued income increased to £1.4 million (2014: £1.2 million). Accrued income arises principally on consulting and professional services revenue which is typically invoiced in the month following provision of the service. Additionally, accrued income can arise on large contracts based on negotiated invoice terms.

Current liabilities

Trade and other payables increased to £4.6 million (2014: £4.5 million) and deferred income remained at £5.4 million (2014: £5.4 million). Deferred income arises principally as a consequence of payments received in advance of revenue recognition with respect to both rental and licence revenues.

Cash and cash flow

Operating cash generation was £1.9 million (2014: £5.8 million).

The Group had investment outflows of £3.7 million (2014: £2.4 million), the increase being due to the ScrapRunner acquisition.

Financing activities show a net cash outflow during 2015 of £1.0 million (2014: £1.0 million). This was largely made up of the dividend paid during the year of £1.5 million (2014: £1.4 million).

The Group’s cash balance continues to be maintained in excess of its normal working capital requirements. The Board continues to believe that a strong balance sheet, with high cash balances, is an important requirement for the Group’s large global clients and potential clients looking to contract with Brady. It is also anticipated that part of the surplus cash resources may be used to finance smaller, “bolt-on” future acquisition opportunities.

Exchange rates

The principal currencies used within the Group are Pound sterling (Brady Metals and Group), Norwegian Krone (Brady Energy), Swiss Franc (Brady Commodities) and the US Dollar (Brady Recycling). The exchange rates used for 2015 and 2014 are shown below:

Average rates

2015 2014 Movement
NOK 12.425 10.467 -18.71%
CHF 1.472 1.511 2.58%
USD 1.526 1.645 7.23%
Year-end rates

2015 2014 Movement
NOK 12.983 11.577 -12.14%
CHF 1.469 1.537 4.42%
USD 1.483 1.553 4.51%
Consolidated statement of comprehensive income

For the year ended 31 December 2015 Unaudited Unaudited Unaudited

Before exceptional items 2015 Exceptional items 2015 2015 Before exceptional items 2014 Exceptional items 2014 2014
Notes £’000 £’000 £’000 £’000 £’000 £’000
Revenue 4 27,374 – 27,374 31,015 – 31,015
Cost of sales (10,867) – (10,867) (10,977) – (10,977)
Gross profit 16,507 – 16,507 20,038 – 20,038
Selling and administrative expenses (17,466) (469) (17,935) (16,864) (2,143) (19,007)
Operating result (959) (469) (1,428) 3,174 (2,143) 1,031
Finance income 31 – 31 58 – 58
Profit for the year before taxation (928) (469) (1,397) 3,232 (2,143) 1,089
Income tax expense (329) – (329) (380) (250) (630)
Profit for the year attributable to the shareholders of Brady plc (1,257) (469) (1,726) 2,852 (2,393) 459

Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translation of foreign operations (2,117) – (2,117) (2,970) – (2,970)
Items that will not subsequently be reclassified to profit and loss:
Movement in actuarial valuation of defined benefit pension scheme (235) – (235) (1,205) – (1,205)

Total comprehensive income for the year (3,609) (469) (4,078) (1,323) (2,393) (3,716)

Earnings per share (pence)
Basic 5 (2.09) 0.56
Diluted (2.07) 0.56
All of the above relate to continuing operations.

Consolidated Statement of Financial Position
31 December 2015

Unaudited
2015 2014
Notes £’000
Assets
Non-current assets
Goodwill 17,178 17,567
Other intangible assets 12,653 13,429
Deferred tax asset 483 542
Property, plant and equipment 1,147 1,076
31,461 32,614
Current assets
Trade and other receivables 5,657 6,209
Accrued income 1,382 1,159
Cash and cash equivalents 6,594 9,580
13,633 16,948

Total assets 45,094 49,562

Equity
Share capital 830 817
Treasury shares (3) (3)
Share premium account 37,053 36,350
Merger reserve 680 680
Merger relief reserve 530 530
Equity reserve 832 890
Foreign exchange reserve (9,343) (7,226)
Capital reserve 4 1
Retained earnings (1,107) 2,327
Total equity 29,476 34,366

Liabilities
Current
Trade and other payables 4,588 4,466
Deferred income 5,394 5,389
Current tax payable 822 690
10,804 10,545
Non-current liabilities
Deferred tax liabilities 2,606 2,789

Pension obligations 2,208 1,862
4,814 4,651

Total liabilities 15,618 15,196

Total equity and liabilities 45,094 49,562

Consolidated Statement of Changes in Equity

31 December 2015

Equity attributable to shareholders of Brady plc:
Share capital

Treasury shares

Share premium account
Merger reserve

Merger relief reserve
Equity reserve

Foreign exchange reserve
Capital reserve

Retained earnings

Total

equity

£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at 31 December 2013 811 (3) 36,018 680 1,348 819 (4,256) 1 3,472 38,890
Dividends – – – – – – – – (1,378) (1,378)
Increase in relation to options issued – – – – – 232 – – – 232
Exercise and cancellation of options – – – – – (161) – – 161 –
Transfer of reserves – – – – (818) – – – 818 –
Allotment of shares 6 – 332 – – – – – – 338
Transactions with owners 6 – 332 – (818) 71 – – (399) (808)
Profit for the year – – – – – – – – 459 459
Other comprehensive income:
Movement in actuarial valuation of defined benefit pension plan – – – – – – – – (1,205) (1,205)
Exchange differences on translation of foreign operations – – – – – – (2,970) – – (2,970)
Total comprehensive income for the year – – – – – – (2,970) – (746) (3,716)
Balance at 31 December 2014 817 (3) 36,350 680 530 890 (7,226) 1 2,327 34,366
Dividends (1,524) (1,524)
Increase in relation to options issued 243 243
Exercise and cancellation of options (301) 301 –
Transfer of reserves –
Allotment of shares 16 – 703 719
Purchase of own Shares (3) 3 (250) (250)
Transactions with owners 13 – 703 – – (58) – 3 (1,473) (812)
Profit for the year (1,726) (1,726)
Other comprehensive income: –
Movement in actuarial valuation of defined benefit pension plan (235) (235)
Exchange differences on translation of foreign operations (2,117) (2,117)
Total comprehensive income for the year – – – – – – (2,117) – (1,961) (4,078)
Balance at 31 December 2015 830 (3) 37,053 680 530 832 (9,343) 4 (1,107) (29,476)

Consolidated Statement of Cash Flows

For the year ended 31 December 2015

Unaudited

2015 2014
£’000 £’000
Operating activities
Profit for the year before exceptional items (1,257) 2,852
Exceptional items (469) (2,393)
Profit for the year (1,726) 459
Depreciation of property, plant and equipment 582 573
Amortisation of intangible assets 2,827 2,540
Impairment of goodwill – 2,528
Interest receivable (31) (58)
Tax charge 329 630
Employee equity settled share options 243 232
Changes in trade and other receivables 414 (71)
Changes in trade and other payables (275) (624)
Taxes paid (416) (420)
Net cash inflow from operating activities 1,947 5,789

Investing activities
Acquisition of ScrapRunner (1,186) –
Cash payments to acquire property, plant and equipment (624) (618)
Cash payments on capitalised development (1,967) (1,801)
Interest received 31 58
Net cash outflow from investing activities (3,746) (2,361)

Financing activities
Proceeds from share issues 719 338
Share Buy Back (250) –
Dividends paid (1,524) (1,378)
Net cash outflow from financing activities (1,055) (1,040)

Net changes in cash and cash equivalents (2,854) 2,388
Cash and cash equivalents, beginning of year 9,580 7,222
Exchange differences on cash and cash equivalents (132) (30)
Cash and cash equivalents, end of year 6,594 9,580
Selected explanatory notes:

1. Nature of operations and general information

Brady plc and its subsidiaries’ principal activity is the provision of trading, risk management and settlement solutions to the energy, metals, recycling and soft commodity industries, through the delivery of client focused software and services.

The Group provides the leading trading and risk management software for global commodity markets. The Group provides a complete integrated solution supporting entire commodities trading operations.

Brady plc, a public limited liability company, is the Group’s ultimate parent company. It is registered in England and Wales. The address of Brady plc’s registered office, which is also its principal place of business, is Riverside House, 2A Southwark Bridge Road, London SE1 9HA.

Brady plc’s shares are listed on the London Stock Exchange’s Alternative Investment Market (AIM). Brady plc’s consolidated full year financial statements are presented in British pounds (£), which is also the functional currency of the parent company.

2. Basis of preparation

The financial information included in this report does not constitute statutory accounts for the purposes of section 434 of the Companies Act 2006. The comparative financial information contained in this statement has been extracted from the 2013 financial statements upon which the Auditor’s opinion is unqualified and does not include any statement under Section 498(2) or Section 498(3) of the Companies Act 2006. For further information, please refer to Brady plc’s Consolidated Financial Statements 2014, which have been filed with the Registrar of Companies and are available on the Company’s website, www.bradyplc.com.

These condensed consolidated preliminary financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the Companies Act 2006 that applies to companies reporting under IFRS and IFRIC interpretations.

3. Summary of significant accounting policies

The accounting policies applied by the Group are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2014.

Going concern

The Group has maintained its strong liquidity position and remains debt free. The Group’s forecasts and projections, taking into account reasonably possible changes in trading performance of the Group show that the Group should be able to operate within the level of its current financing. Revenue, operating margin and cash flow budgets have been prepared at business unit level and, as a result, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.

4. Segment reporting

Operating segments

In accordance with IFRS 8, “Operating Segments”, information for the Group’s business units has been derived using the information used by the chief operating decision maker. The Executive Directors have been identified as the chief operating decision maker, as the Board is responsible for the allocation of resources to business units and assessing their performance. The Group is organised into three business units comprising different market sectors within the ECTRM market and each business unit is able to operate globally. The three business units are Commodities, Energy and Recycling. The profit measure used by the Board is business unit contribution, which is operating profit for the business unit before the allocation of central and shared expenses, the amortisation of acquired intangible assets, interest income, interest expenses and before exceptional items and taxation. All inter-segmental transfers are carried out at arm’s length prices.

The tables below show an analysis of the results by operating segment:

2015

Revenues

2015

Business unit contribution

2014

Revenues

2014

Business unit contribution

£’000 £’000 £’000 £’000

Commodities business unit 12,414 3,662 14,420 5,859
Energy business unit 10,738 2,779 12,589 2,816
Recycling business unit 4,222 70 4,006 787
27,374 6,511 31,015 9,462
Amortisation of acquired intangible assets (1,640) (1,613)
Central and shared costs (5,830) (4,675)
Operating result before exceptional items (959) 3,174

Add Back:
Depreciation 582 573
Amortisation of capitalised development 1,187 928
Amortisation of acquired intangibles 1,640 1,613

EBITDA 2,450 6,288
The chief operating decision maker of the Group does not analyse the net assets according to revenue type or business unit.

Revenue by geography

An analysis of sales revenue by geographical market is given below:

2015 2014
£’000 £’000

EMEA 19,750 21,096
Americas 6,230 7,206
APAC 1,394 2,713
27,374 31,015
2015 2014
£’000 £’000

United Kingdom 4,340 5,178
Overseas countries 23,034 25,837
27,374 31,015
Countries where revenue represents more than 10% of Group revenues are detailed below:

2015 2014
£’000 £’000

United Kingdom 4,340 5,178
Switzerland 4,933 3,788
Norway 4,407 4,941
USA 4,541 5,486

The Group generates revenue from software licence sales, recurring maintenance fees and the provision of associated consulting and development services. Revenues can be analysed as below:

2015 2014
£’000 £’000

Software licence sales 5,185 7,541
Recurring support and maintenance and rental revenues 15,249 15,848
Service fees including development 6,940 7,626
27,374 31,015
The Group had non-current assets (excluding deferred tax) outside of the United Kingdom at the year-end date as follows:

2015 2014
£’000 £’000

Property, plant and equipment 440 469
Goodwill 15,676 16,066
Intangible assets – client contracts acquired 2,134 2,346
Intangible assets – software acquired 4,213 5,525
Capitalised development costs 792 665
23,255 25,071
This reconciles to total non-current assets (excluding deferred tax) as follows:

2015 2014
£’000 £’000

United Kingdom 7,696 7,001
USA 6,964 5,199
Singapore 6 4
Switzerland 2,989 3,615
Norway 13,323 16,253
Total non-current assets 30,978 32,072
The management of the Group does not analyse the net assets according to revenue type.

5. Earnings per share

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of Brady plc divided by the weighted average number of shares in issue during the year.All earnings per share calculations relate to continuing operations of the Group. Separate calculations have been prepared related to the profit before and after exceptional items.

Profits attributable to shareholders

£’000

Weighted average number of shares

Basic earnings per share amount in pence

2015 before exceptional items (1,257) 82,704,721 -1.52
2015 (1,726) 82,704,721 -2.09
2014 before exceptional items 2,852 81,316,778 3.51
2014 459 81,316,778 0.56
The calculation of the diluted earnings per share is based on the profits attributable to the shareholders of Brady plc divided by the weighted average number of shares in issue during the year, as adjusted for dilutive share options. All earnings per share calculations relate to continuing operations of the Group. Separate calculations have been prepared related to the profit before and after exceptional items.

Dilutive options

Anti-dilutive options

Diluted earnings per share amount in pence

2015 before exceptional items 639,836 5,710,302 -1.51
2015 639,836 5,710,302 -2.07
2014 before exceptional items 933,817 1,747,971 3.47
2014 933,817 1,747,971 0.56
The calculation of the adjusted earnings per share, as calculated by external analysts, is based on the profit after tax, adjusted for acquired intangible assets amortisation, share based compensation, exceptional items and normalised tax, and is calculated as follows:

2015 2014
£’000 £’000
Profit for the year (1,726) 459
Add back:
Exceptional Items 469 2,393
Amortisation of acquired intangibles 1,640 1,613
Share based compensation 243 232
Tax charge 329 380
Deduct:
Normalised tax at 15% (2014: 15%) (142) (762)
Adjusted profit 813 4,315

Adjusted profits attributable to shareholders

£‘000

Weighted average number of shares

Basic earnings per share amount in pence

2015 813 82,704,721 0.98
2014 4,315 81,316,778 5.31

Dilutive options

Anti-dilutive options

Adjusted diluted earnings per share amount in pence

2015 639,836 5,710,302 0.97
2014 933,817 1,747,971 5.25
The reconciliation of average number of ordinary shares used for basic and diluted earnings per share is as below:

Weighted average number of ordinary shares 2015 2014

Used for basic earnings per share 82,704,721 81,316,778
Under option 639,836 933,817
Used for diluted earnings per share 83,344,557 82,250,595

6. Exceptional items

2015 2014
£’000 £’000

Impairment of goodwill – 2,528
Provision in respect of overseas tax enquiry regarding transfer pricing – 250
Other professional fees relating to tax enquiry – 72
Release of SAI earnout – (457)
Reorganisation costs 347 –
Acquisition costs in relation to ScrapRunner 122 –
469 2,393
7. Treasury shares

The total number of ordinary shares held in treasury at the end of the year was 4,306 (2014: 4,306).

8. Post balance sheet events

On 4th January 2016 the Group completed a very small but strategically important acquisition and acquired 100% of the share capital of Raft International Limited from Temenos Group AG. Raft International Limited owns and operates the energycredit product. Energycredit provides specialised domain expertise in credit risk to the energy and commodity markets with a software development facility in India.

9. Financial statements

Copies of the 2015 annual report and consolidated financial statements will be posted to shareholders shortly and will be available from the Company’s registered office at Riverside House, 2A Southwark Bridge Road, London SE1 9HA and on the Company’s website www.bradyplc.com.

21 March 2016: Brady plc announces preliminary results for the year ended December 2015