Brady sells US recycling business

Mixed news for Brady shareholders, with the company receiving a cash boost from the sale of its US recycling business but also announcing that £800,000 of revenues expected in 2017 are now expected to be recognised in 2018.

Trading and risk management software provider Brady PLC (LON:BRY) continues to make rapid progress in its transition to a software-as-a-service (SaaS) model.

The board revealed in a trading statement that recurring revenues in 2017 represented 67% of total sales.

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The transition away from a one-off licence sale model to the SaaS model is known to hit revenues in the early years as the company sacrifices big upfront payments for regular income, and in Brady’s case this means that it has foregone £1.7mln of one-off licence revenues and will receive instead £0.8mln of recurring licence revenues each year over an initial five-year term, with the licence period set to roll-over thereafter.

Delay in recognising revenue for two existing customer contracts​

Revenue for the year is expected to clock in at around £27mln, with the board revealing it now expects to recognise revenue of around £800,000 in respect of work performed on two existing customer contracts in the first half of 2018 rather than in 2017.

Adjusted underlying earnings (EBITDA) for 2017 is expected to fall within the range of £500,000 and £700,000, with the group recognising exceptional costs of around £2mln related to the restructuring of the business.

“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,” said Ian Jenks, the executive chairman of Brady.

Sale of US recycling business to AMCS Group​

Brady said it has offloaded its US recycling business for up to £4.6mln in cash to AMCS Group. The consideration is subject to an adjustment for any excess of current liabilities over current assets.

Brady will receive around £3.6mln in upfront cash payments, with the balance payable in 18 months following completion.

In 2016 [sic], the US recycling business generated revenues of £4.9mln and an operating profit of £800,000; the 2017 operating profit is expected to be in the region of £300,000.

“The sale of our US recycling business means Brady 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,” Jenks said.

Shares in Brady were down 9.2% at 56.5p in early deals.

Brady sells US recycling business