1 2006 Interim Results 14 August 2006. 2 Disclaimer Any statements set forth herein or communicated...
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Transcript of 1 2006 Interim Results 14 August 2006. 2 Disclaimer Any statements set forth herein or communicated...
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Disclaimer
Any statements set forth herein or communicated verbally that are not historical facts are forward-looking statements or opinions that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
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Contents
Overview
Interim results
New management team and focus
Operational review
Platform for growth
– Buoyant market conditions
– Real growth drivers
– Strong market positions
– Best of breed products
Organic growth strategy
Organic growth case studies
Summary
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Overview
Business:
– International market leading provider of retail IT systems and services
– 2005 and 2006 acquisitions successfully integrated
– Strong platform for growth now established
– Absolute focus on driving organic growth going forward Financial:
– Sales of £131.9m up 151% on 2005 with operating profit of £18.2 million up 129% on last year
– Strong underlying organic growth achieved – Sales 8% and Operating Profit 15%
– Adjusted EPS of 2.9p represents a 21% uplift on 2005
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Interim Results – Profit and Loss
Summary Profit & Loss £m
Six months to 30 June
2006
Six months to 30 June
2005
Increase %
Revenue
Continuing 126.1 52.5 140%
Acquisitions 5.8 - 11%
131.9 52.5 151%
Overheads* as % of Sales 48.2% 54.1%
EBIT*
Continuing 17.1 8.0 114%
Acquisitions 1.1 - 14%
18.2 8.0 128%
Exceptional costs - restructuring (4.9) (1.8)
Adjusted EPS 2.9p 2.4p 21%
Return on Sales
Continuing 13.6% 15.5%
Acquisitions 19.0% 12.9%
Group 13.8% 15.2%
Acquisition driven sales growth underpinnedby strong organic growth
Return on sales is effectedby increased proportionof hardware sales in Continental Europe
6% reduction in Overheads* % arising from 2005 restructuring activity
*before goodwill amortisation, cost of employee share schemes and exceptional items
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Interim Results – Geographical Analysis
Sales
EBIT
UK 76%
CE 16%
ROW 8%
2005
UK 47%
CE 36%
ROW 17%
2006
UK 84%
CE 8%ROW 8%
2005
UK 52%
CE 37%
ROW 11%
2006
The aggressive acquisition strategy has delivered the required presence in key global markets with strong growth across Continental Europe and the US
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15.4%17.4%
30.3%
3.2%33.7%
27.9%
23.3%17.8%
28.9%
2.1%
20%21%
31%
2%26%
8%10%
38%
6%38%
15%
20%
9% 4%
52%
Interim Results - Analysis of First-Half Revenues
Software and Services sales in the UK remain strong, representing 41% of sales Strengthening sales in Continental Europe and the Americas have increased the Hardware
proportion of Group sales The weighting of Software sales in the second half, combined with the contribution from recent
acquisitions is expected to bolster the level of software activity and the mix for the full year
2006
2005
United Kingdom
Continental Europe
Rest of World
Hardware Software Services Maintenance Other
Hardware
SoftwareServices
Maintenance
Other
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Interim Results – Organic Growth
8%
H1 2005 Pro-forma
£m
Underlying organic growth
H1 2006 Continuing operations
£m
Revenue
Continuing operations 52.5 126.1
Add pre acquisition 64.5 -
Underlying revenue 117.0 126.1
EBIT
Continuing operations 8.0 17.1
Add pre acquisition 3.8 -
Less annualised savings arising from 2005 exceptional items
- (3.6)
Underlying EBIT 11.8 13.5
Organic sales growth of 8% remains encouraging. The forecast revenues for the second half are consistent with low double digit organic growth for the full year
The 15% growth in underlying organic profit is reflective of the full period impact of 2005 acquisitions
15%
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Interim Results – Balance Sheet
Balance sheet£m
30 June2006
30 June 2005
Fixed assets
Intangible assets 396.7 105.2
Tangible assets 9.9 3.4
Investments 0.1 -
406.7 108.6
Current assets
Stocks 26.7 11.9
Debtors 89.1 38.5
Cash at bank and in hand 8.1 3.3
123.9 53.8
Creditors: amounts falling due within one year (119.7) (50.1)
Net current assets 4.2 3.7
Total assets less current liabilities 410.9 112.3
Creditors: amounts falling due after one year (153.9) (33.9)
Net assets 257.0 78.5
Increase in fixed assets arising fromacquisitions
Positive current trends in working capital management
Bank borrowings of £147.9m compare to facility of £160m
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Cashflow£m
Six months to 30 June
2006
Six months to 30 June
2005
Net operating cashflow pre exceptional items 12.1 4.2
Exceptional items (18.9) (1.8)Net cashflow from operating activities (6.8) 2.4
Returns on investment and servicing of finance (5.4) (3.2)
Taxation (1.4) (0.3)
Capital expenditure (1.7) (0.3)
Acquisitions (3.1) (18.6)
Dividends (2.3) (1.1)
Net cashflow before financing (20.8) (21.1)
Issue of ordinary share capital - 0.1
Issue of share options 0.5 -
Finance lease repayments (0.8) -
New loans 15.7 13.2
Increase/(decrease) in cash in the period (5.4) (7.8)
Operating cash conversion rate pre exceptional items
119% 75%
Operational cashflow and servicing of finance impacted by acquisitions
Interim Results - Cashflow
Encouraging cash conversion rates pre Exceptional items
Net operating cashflow pre exceptional itemsof £12.1m
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New Management Structure and Focus
Operational management has been restructured to focus on maximising organic growth opportunities in the coming period
More de-centralised style of management to closely address market and customer requirements
Five internal appointments that have been made reporting directly to the Plc Board:
– CEO of UK General Retail: Doug Hargrove (age 39)
(Previously Chief Operations Officer, UK & Ireland)
– CEO for Overseas Business: Phil Cox (age 40)
(Previously Group Treasury Officer)
– CEO of Hospitality & QSR: Keith Pascal (age 41)
(Previously VP Sales & Marketing – Torex Corporation)
– CEO of Petroleum & Convenience: Brendan Kavanagh (age 41)
(Previously Head of P&C Division Worldwide)
– CEO of Americas General Retail : Mike Hess (age 43)
(Previously President & COO of Torex North America) The appointment of Marcus Leek as Group FD and Mark Lovett as UK FD has
bolstered the finance function
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Operational Review - Retail
Significant level of business wins across all markets from new and existing customers
– New - United News, GNER, Boots, Dutch Post Office, Nokia, Bed Bath and Beyond
– Existing - Matalan, Schlecker, CompUSA, Stein Mart, BJ’s Wholesale Club
Integration of Anker now virtually complete
– Social plan agreed with work force in Germany and operations rationalised to one main site in Berlin
– UK operational teams unified Integration of Retail-J underway with very encouraging response from
customers and prospects Strategy to drive own IPR software sales in US market starting to
bear fruit
– First win for Lucas (The Picture People)
– Continued wins for ISIS (Paramount Foods, Marukai Corp)
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Operational Review - Hospitality
Continued success in UK market
– Punch Taverns, Elior, Mitchells and Butlers
Entry into international QSR market and McDonalds gained as worldwide POS client with acquisition of Savista
Successful launch of XN GlobalRes product in hotel market and first sale of new in-room entertainment system
Gaming business continuing to perform well with number of significant casino wins in both Europe and Africa
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Operational Review – Petrol & Convenience
The P&C division has made rapid progress in the period and is now in a strong position to capitalise on significant global opportunities available as part of the Torex brand
Strategy to target supermarkets, MOCs and large convenience chains progressing well with wins including Budgens, Tescos and Statoil
The divisional restructure into one trading entity is progressing successfully and already benefiting key accounts
Significant extension of services portfolio with acquisition of TQIPS
The integration of TQIPS is proceeding to schedule. New contracts secured through TQIPS include BT, Asda and Tesco
The pipeline of future projects is strong including major contract opportunities in China, Jordan and Romania
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Platform For Growth - Buoyant Market Conditions
Retail applications represent a large, growing market opportunity1
In-store and Enterprise Systems represent 60% of all software spending in 20052
The global Retail software market is highly fragmented; no vendor has greater than 9% market share1
Over 50% of global Retailers indicated a near-term project to upgrade or replace existing systems1
Price & Promotion 10%
Other Store Operations 8%
Retail Planning 9%
Retail Supply Chain 10%
POS Software 17%Other Enterprise Retail 6%
Other 31%
Inventory Management 9%
Market Size ($MM)
Region 2005 2009 CAGR
North America $3,975 $5,370 7.8%Europe 1,659 2,207 7.4%Asia-Pacific 564 974 14.6%Central & South America 229 505 21.9%Rest of World 209 218 1.1%
Total $6,636 $9,274 8.7%
1) Source: AMR Research, Retail Industry Market Analysis 2004-2009, December 2005. Includes Application License, Subscription, Maintenance and Implementation/Training.2) Source: AMR Research, Retail Industry Market Analysis 2004-2009, December 2005. 2005 Retail software license revenue market by application segment.
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Platform For Growth - Real Growth Drivers
First major replenishment cycle post Y2K Massive IBM installed base becoming increasingly old and expensive
for retailers to maintain New JAVA and .NET technologies create real benefits for retailers
– Real time data speeds up supply chain
– Increased flexibility and speed with pricing & promotions
– Improved integration to ERP and CRM systems
– Significantly lower total cost of ownership
– Simplifies/enables multi-channel retailing
Buoyant market conditions set to continue for next 3-5 years
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Platform For Growth - Strong Market Positions
Company2005 License Software
Revenue ($MM)1
2005 Revenue Share
153 7%
144 6%
130 6%
46 2%
46 2%
48 2%
$202 9%
113 5%
52 2%
1) Source AMR Research, Retail Industry Market Analysis 2004-2009, December 2005. Retail application license and hosting revenue.2) Source: Martec primary and secondary research
23%
13%
10%10%
7%6%
3%
2%
2%
2%
13%
9%In-house
IBM
TorexBT Expedite
FujitsuRetalix
TEC
NCR
Wincor Nixdorf
Retail-J
Others
Not known
Top European EPoS Software Provider2Top Global Retail Software Provider2
153 7%
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Platform For Growth – Best of Breed Products
World class POS portfolio with significant growth opportunities via direct and indirect channels
– General retail Retail-J and Lucas
– Food retail ISIS
– Hospitality NewPOS
– SME DRS Complementary portfolio of leading in-store and head office solutions
which provide significant cross selling opportunities
– Labour Scheduling ePerformance
– Merchandise planning Lucas Planning
– Warehouse management WMS
– Automated compliance Edict
– Business intelligence Galaxy
– Loss Prevention Lord
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Organic Growth Strategy
Platform for growth achieved primarily through acquisition in 2005 and first half 2006
Focus on organic growth in all markets
– Migrate massive installed base to own POS products
– Cross sell other applications
– Develop indirect channels
– Leverage market leadership position and brand
– Economies of scale
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Organic Growth Case Study - Savista
Increased business with McDonalds
– Accelerate POS rollout – 24,000 plus restaurants
– Systems integration, implementation and maintenance services
– Torex software applications
– Hardware supply Target Top 100 international QSR chains – sales pipeline > $50m of
live deals Develop indirect channel – NewPOS currently implemented in 65
countries Sell NewPOS through own direct hospitality sales force in UK and
Europe
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Organic Growth Case study – Retail-J
The Retail-J acquisition has completed the world-class POS portfolio and has created a substantial opportunity for both direct and channel sales
Accelerated penetration of the UK market place has commenced with the product now actively marketed by the Torex UK sales force
The ‘pull-in’ of outsourced portions of Retail-J deals to in-house Torex resource is progressing well (i.e. hardware, services, other software)
The Retail-J solution has been designed as a product that can be sold by third parties. Acceleration of worldwide distribution is a priority and the Group is actively creating an appropriate distribution network
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Organic Growth Case Study – Cross Selling
Sample of executed deals: Reiss have signed up to Edict business control software, WMS and
Merchandise Planning Bargain Crazy have signed up to WMS 99p Stores have agreed to do a pilot of MCast and committed WMS Slaters Menswear are committed to Merchandise Planning
There is an extensive portfolio of cross sell prospects. A sample ofthose at latter stage discussion include: International Retail chains considering merchandise planning and
business control software US retailer considering labour scheduling Tender to US QSR chain for full turnkey solution
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Summary
Sales and EBIT* target achieved.Strong underlying organic growth - Sales 8% and Operating Profit 15%
Results ahead of expectations
Platform for growth established
New management team in place
100% focus on organic growth2005 and 2006 acquisitions successfullyintegrated
Senior management team strengthened with five operational CEOs, alongside new Group and UK finance directors
A massive customer base, extensive geographic reach and leading edgeproducts now in place
*before goodwill amortisation, cost of employee share schemes and exceptional items
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Interim Results
Profit & Loss£m
Six months to 30 June
2006
Six mothhs to 30 June
2005
Increase %
Revenue 131.9 52.5 151%
Cost of sales (50.1) (16.2)
Gross profit 81.8 36.3 125%
Overheads (63.6) (28.3)
EBIT 18.2 8.0 128%
Exceptional items (4.9) (1.8)
Charges for employee share schemes (2.6) -
Goodwill amortisation (9.4) (2.4)
Operating profit 1.3 3.8
Net interest payable (5.0) (1.7)
Profit on ordinary activities before tax (3.7) 2.1
Taxation (1.4) (1.3)
Profit on ordinary activities after tax (5.1) 0.8
Minority interest 0.1 -
Dividend (2.3) (1.1)
Retained (loss)/profit (7.3) (0.3)
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Interim Results
Balance sheet£m
30 June 2006
30 June
2005
Fixed assets
Intangible assets 396.7 105.2
Tangible assets 9.9 3.4
Investments 0.1 -
406.7 108.6
Current assets
Stocks 26.7 11.9
Debtors 89.1 38.5
Cash at bank and in hand 8.1 3.3
123.9 53.7
Creditors: amounts falling due within one year (119.7) (50.0)
Net current assets 4.2 3.7
Total assets less current liabilities 410.9 112.3
Creditors: amounts falling due after one year (153.9) (33.9)
Net assets 257.0 78.4
Capital and reserves
Share capital 3.7 1.9
Share premium account 62.2 71.7
Merger reserve 202.4 -
Other reserve 8.5 0.5
Profit and loss account (19.8) 4.3
Shareholders funds 257.0 78.4