25th January 2018: Trading Statement and disposal of US recycling business
Thursday 25 January
(“Brady”, the “Company” or the “Group”)
Trading Statement and disposal of US recycling business
Brady plc (AIM: BRY), the leading global provider of energy, commodity and recycling software, provides the following trading update for the full year 2017.
Transition to recurring revenue agreements
During 2017 the Group continued to focus on its transition from a one-off licence model to a recurring revenue model, with a view to improving earnings visibility and facilitating the Group in delivering sustainable growth. The Board is pleased to report that in 2017 recurring revenues represented 67% of total sales.
Over the course of 2017 the Board took the strategic decision, where possible, to renew contracts on a recurring basis and accordingly during the year the Board elected to replace £1.7m of one-off licence revenues, with rolling agreements providing recurring licence revenues, with an annual value of £0.8mfor an initial five-year term and rolling annually thereafter.
The Group expects to recognise revenue, in the amount of approximately £0.8m, for work performed on two existing customer contracts in 2017 during H1 2018 rather than in FY 2017.
Work has continued on the restructuring of the business in order to better integrate the service offerings, resulting in exceptional costs of approximately £2.0m. The Board expects to report revenue for the year ended 31 December 2017 of approximately £27m and to report adjusted EBITDA1 in the range of £0.5m to £0.7m.
Net cash as at 31 December 2017 was £4.4m (2016: £7.3m).
Disposal of US recycling business
The Board is pleased to announce that following its review of the Group’s strategic plan it has, today, disposed of its non-core US recycling business, for a maximum cash consideration of £4.6m (US$6.5m) to AMCS Group (the “Disposal”).
The Disposal will enable the Company to focus its efforts on supplying its market-leading software and services to the energy and commodity sectors and further streamlines the Group.
Under the terms of the sale agreement, AMCS Group has agreed to acquire the entire share capital of Brady US Holdings Inc and Systems Alternative International LLC (together the “Recycling Business”) for a maximum consideration of £4.6m.
The Group is to receive gross proceeds of up to £4.6m less an adjustment for any excess of current liabilities over current assets as determined in the completion accounts (this is estimated to be approximately £0.3m). Brady is to receive approximately £3.6m ($5m) in upfront cash payments, with the balance payable in 18 months following completion.
For the year ended 31 December 2016, the Recycling Business generated revenues of £4.9m and operating profit of £0.8m(unaudited operating profit for 2017 is expected to be £0.3m).
In the latest notified balance sheet for the Group at 30 June 2017, the unaudited gross assets of the Recycling Business were £10.7m and net liabilities were £1.0m. The value of the Recycling Business’ unaudited net assets at 31 December 2017 was £6.4m, including intangible assets attributable to the Recycling Business of £4.6m.
The upfront cash proceeds from the Disposal will strengthen the Company’s balance sheet and, combined with the Group’s net cash as at 31 December 2017, means Brady will have approximately £8m of cash on its balance sheet.
Ian Jenks, executive chairman of Brady, said:
“The Group has substantially achieved the transition of its business to a recurring revenue model. This has inevitably impacted short-term performance. However, the Board is confident that the business is well positioned for sustainable, long–term predictable growth.
“The sale of our US recycling business meansBrady will now have approximately £8m in cash on the balance sheet and that the business is well funded to continue its strategy of moving to a recurring revenue model and investing in our continued product leadership.”
Full details of the Group’s financial performance for the period will be provided in the Preliminary Results, which are expected to be announced in March 2018.
1. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is EBITDA before exceptional items
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
For further information please contact:
Ian Jenks, Executive Chairman
Martin Thorneycroft, Chief Financial Officer
+44 (0)1223 479479
Cenkos Securities plc
+44 (0)20 7397 8900
+44 (0)20 7382 4730
Brady plc (BRY.L) is the largest European-headquartered provider of trading and risk management software to the global commodity and energy markets. Brady combines fully integrated and complete solutions supporting the entire commodity trading operation, from capture of financial and physical trading, through risk management, handling of physical operations, back office financials and treasury settlement, for energy, refined and unrefined, soft commodities and agriculturals.
Brady has 30 years’ expertise in the commodity markets with some300 customers worldwide, who depend on Brady’s software solutions to deliver vital business transactions across their global operations. Brady clients include many of the world’s largest financial institutions, trading companies, miners, refiners and producers, tier one banks and a large number of London Metal Exchange (LME) Category 1 and 2 clearing members and many leading European energy generators, traders and consumers.
For further information visit: www.bradyplc.com