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Brady reboot to deliver sustainable growth from 2018 onwards

"The improvement in underlying profitability reflected in the increase of £2mln in adjusted EBITDA, reflects the full year impact of last year's cost savings,” executive chairman Ian Jenks said.
Metal box
The metals markets have taken a bit of a bashing

Trading and risk management solutions provider Brady Plc (LON:BRY) said it is well-placed to execute its new “one company” strategy.

Since chairman Ian Jenks assumed executive duties last year the company has had a rethink about its business model and organisational structure.

“When I took over as executive chairman in September we had a focus on licence-based contracts, which had created a sales-led culture to the detriment of long-term customer relationships and product strategy,” Jenks said in this morning’s results statement.

WATCH: Brady boss highlights 'transformational' 2016 ...

“The group was also organised into small business units, based on a series of acquisitions, each focussed on their own objectives, which were not necessarily aligned with those of the wider group,” he added.

The group has subsequently integrated the Commodities, Energy and Recycling business units into one company, albeit one organised by function.

Instead of chasing one-off licence sales, the company – in common with just about every other software company in the world – is pursuing recurring revenues by “providing a solution rather than just selling a product”.

The company intends this year to invest in developing the organisation, products and business model, and although this will increase the cost base and hit profitability in the short term, “it will create the foundations to deliver sustainable growth, profitability and a reduction in our operational gearing from 2018 onwards,” Jenks predicted.

The group ended 2017 with cash on hand of £7.3mln and committed recurring revenues and contracted development & services revenues of around £24mln, so it is “well placed to execute”, Jenks proclaimed.

Total revenues in 2016 rose to £30.3mln from £27.4mln the year before, helped by foreign exchange movements. On a constant currency basis, revenues rose to £27.9mln from £27.4mln in 2015.

Recurring revenues climbed to £18.9mln from £15.3mln the year before, to form 62% of Total revenue (2015: 56%).

Service and development revenues rose to £7.8mln (26% of Total) from £6.8mln (25%) in 2015.

The group’s dependence on “lumpy” licence revenues declined, with sales down to £3.6mln (12%) from £5.2mln (19%) the year before.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose to £4.53mln from £2.45mln the previous year. Exceptional charges reduced EBITDA this time round to £3.37mln, compared to £1.98mln in 2015.

"The improvement in underlying profitability reflected in the increase of £2mln in adjusted EBITDA, reflects the full year impact of last year's cost savings,” Jenks said.

The loss before tax and exceptional items was £536,000, versus a loss the year before of £959,000. Exceptional items turned that into a loss before tax of £623,000 (2015: a loss of £1.4mln).

The exceptional charges of £1.16mln included £600,000 of restructuring costs – largely redundancy payments.

Market conditions remain challenging and while there has been a small recovery in some commodity markets, metal prices remain low and US steel production remains well below capacity, Brady told investors.

Nevertheless, Jenks said he expects the “one company” approach, in conjunction with the significant investment being made into the business this year, will deliver tangible results over the coming years.

“We anticipate both closer alignment with our clients, and target market segments. The Brady transformation is designed to deliver greater customer success through quality software and services and by focusing on areas of value best addressed by software and data driven insights in our target markets," Jenks said.

Shares in Brady were off 1.3% at 78p in early trading.

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