Trace Group reports full year profit rise; dividend up 21%

Source: Trace Group

Trace Group plc, one of the UK's leading providers of software solutions to the financial, insurance and property markets, announces its preliminary results for the year ended 31st May 2005.

Key points:

  • Profit before tax reported at £1.224 million (2004 - £822,000), an improvement of £402,000.
  • Dividend increased by 21% to 0.85p per share (2004 - 0.7p).
  • Earnings per share improved 26% to 5.92p per share (2004 - 4.69p).
  • Turnover increased to £16.11 million (2004 - £15.47 million).
  • £443,000 cash generated after repaying £1 million loan notes. Net cash balances increased to £3.03 million (2004 - £2.58 million).
  • Net assets increased to £11.03 million, representing 74p per share (2004 - 58p per share).

Trace Group plc
Preliminary unaudited results for the year ended 31st May 2005
Chairman's Statement


This is the first time that I, as your Chairman, am able to present a full year's results and it gives me great pleasure to report a continuing improvement in all areas of your Company. Last year we reported that our performance had considerably improved and I am happy to be able to tell you that the upward momentum has been sustained. The group has made steady progress on all fronts, our businesses have developed and we are in a strong financial position.

I am particularly pleased to report an increase in turnover to £16.1 million (2004 - £15.5 million). This is a welcome reversal of the recent trend and is particularly gratifying in the light of the historical difficulties we have had in growing the top line. We are beginning to see a return from the investments that we have made in recent years, with a good level of on-going demand for our products and services. Package income increased significantly over last year's improved performance, as did our services income. Recurring revenue, net of direct costs, which remains a fundamental bedrock for our future, stood at £6.53 million, an increase of 5% over the previous year. At this level recurring revenue covers 51% of all our operational costs, the same proportion as last year.

Gross margins have improved once again to 23.6% from 21.4% last time, in the main due to increased package sales and our continuing tight control on costs. We aim to maintain this ratio, which is amongst the best in our industry. Our operating profit, before goodwill and interest, increased to £1.32 million from £1.01 million, ahead of market expectations.

Profit before tax increased to £1.22 million (2004 - £0.82 million). This result is after the final goodwill write-off of £200,000 in relation to the acquisition of Datawise (2004 - £200,000). At the end of the financial year we re-valued our freehold properties in line with our accounting policy. This resulted in a significant increase of £1.6 million, from £5.4 million to £7.0 million. Of this increase, only £168,000 was credited to the profit and loss account with the rest being directly recorded in the balance sheet. In addition, a provision of £261,000 was made for the expected net losses that will be incurred under an onerous lease on premises that are not occupied by the group, which terminates in 2008.

Profit after tax improved to £886,000 (2004 - £702,000). We are reporting improved earnings per share of 5.92p (2004 - 4.69p), an increase of 26%. Our cash position has strengthened, standing at £3.026 million at the year end, compared to £2.583 million a year earlier and the generation of £443,000 is particularly pleasing when viewed against the payment we made at the beginning of the year to redeem £1 million of loan notes. Our net assets stand at £11.03 million (2004 - £8.83 million). This represents a net asset value per share of 73.8p of which all but 0.5p is represented by tangible net assets. As a reflection of the directors' confidence in the underlying performance and potential of the Group we have, since the year end, used £114,000 of the Company's cash resources to buy back 140,000 ordinary shares which are being held as treasury shares.

Based on our improving results, the board will be recommending a final dividend of 0.85p per share for the year ended 31st May 2005 (2004 - 0.7p). This is expected to be paid to shareholders on the register of members on 14th October 2005, shortly after approval at the AGM.

Current trading and prospects

We enter the new financial year in an optimistic frame of mind. The second half of the year showed a significant improvement over the first half and this is a pattern we have now seen over several years. The results for the year showed a significant improvement over the previous year and we expect this trend to continue. We remain a services led Company, providing high quality support to our clients on the back of well configured products and we believe this formula is one which our clients demand and appreciate and one which will provide the basis for solid growth in the future.

Over the years we have invested in our packages and procedures and the improvement over the last two years reflects, in part, a return on these investments. We have increased our sales and marketing in all areas of our business in order to enable us to maximise the opportunities we are currently seeing. Naturally our markets remain competitive but we believe we are well placed to respond to the challenges which are before us. We will continue to invest internally to ensure that we remain in a strong position, improving performance and generating significant upward potential. Our financial position is stronger than it has ever been enabling us to actively target growth by acquisition. Your board has determined detailed criteria for possible acquisitions and will pursue all sensible opportunities with the overall aim of increasing shareholder value.

Bob Carefull has decided, due to personal commitments, that he will not put himself forward for re-election at the forthcoming Annual General Meeting. On behalf of the board, I would like to express our thanks to Bob for his invaluable contribution during his time with us.

On behalf of the board my thanks go to our shareholders, clients and staff.

Daniel R Chapchal
21st September 2005

Trace Group plc
Preliminary unaudited results for the year ended 31st May 2005
Operations Review

TRACE ISYS had another solid and successful year with turnover and contribution both up compared to last year's good results. The company remains the strongest performer in the group. Trace Isys is the pre-eminent supplier of IT systems to the top end of the Lloyd's broker market. In order to maintain this position, we place great importance on ensuring that our products are the most fully configured available and that our service is at the highest level.

On top of the many client requests to customise TWINS, our main application product, to cater for their and their trading partners changing needs, we also place great emphasis on ensuring that our software is kept fully abreast of all market led initiatives. In January 2005, commercial intermediaries became regulated by the FSA and as a result many changes were made to TWINS to ensure that it fully complied with the new regulations. These changes included introducing facilities to allow our clients to hold their own funds separately from those deemed to be their clients. TWINS provides an easy to operate on-line software solution which provides both the analysis and the reconciliation to meet this requirement.

One of the measures by which we judge ourselves is how well our systems are adopted by the market and against this measure the last financial year was a successful one. One of our clients, Prentis Donegan and Partners, merged with Price Forbes. TWINS was chosen for the enlarged entity which resulted in a major multi-site implementation. Rattner MacKenzie, part of Houston Casualty company, started using our system in October, within 5 months of ordering. The project, including a full data migration, was implemented on time and to budget. Finally and particularly pleasing and important for Isys was that the London part of the major global reinsurance intermediary, Guy Carpenter, agreed to take TWINS to process all their back office transactions. This is a major endorsement of TWINS. The implementation timetable was extremely aggressive and the full implementation was completed by the end of April 2005 though we expect the full bedding down process to take several months more.

One of the major on-going general market initiatives over many years has been the drive to improve the services and infrastructure under which the market operates. A project currently underway, known by the market as Accounting & Settlement, is aimed at replacing paper and bespoke messages with internationally accepted ACORD messages. We are at the forefront of this initiative, participating in all three design sub groups. If this project goes ahead as planned in October, then we aim to be one of the first suppliers to be able to meet the new requirements. The other major software development we are undertaking, as reported last year, is the redevelopment of TWINS so that both we and our clients can take advantage of and be "future proofed" against the continuous technological advances which take place within IT. This is a major investment by us and is going well and according to schedule. At the end of the financial year the components covering infrastructure, trading partners and risk were in place and the fiduciary component, including transaction processing, has started. This is a five year project and we are encouraged that the model driven architecture (MDA) approach which we have adopted is delivering as we had hoped.

Trace Solutions has had another record year. Last year we recorded our best performance for ten years and the trend has continued, with increases in turnover, contribution and new orders helping us consolidate our position in the market. What was particularly pleasing is that a record thirty new clients placed orders for our software packages. These orders came not only from the managing agent sector for our TRAMPS system, but also from property investors for our BlueBox system which was launched in 2003, and from the occupier sector for our new o6ix system which was launched at PCS Expo 2004. Several of these sales have been very significant in establishing and confirming our position in the market and for one of our clients we have also created a marketing module to allow them to sell new property developments on the web. Nelson Bakewell upgraded by taking a UK firm wide licence along with several additional modules and Lambert Smith Hampton committed to migrate from their Unix version of TRAMPS, a project which will generate good implementation services revenue in the coming financial year.

We are and remain a service company. We place great emphasis on supporting our existing clients effectively and considerately and one of the benefits we derive from this has been strong sales of additional modules, as well as the generation of bespoke software orders.

As for many years, we have continued to invest in our products through a programme of continuous enhancements and the development of new modules to broaden the scope of our software offerings, assisted in many cases by an active and supportive user group. We have worked with a leading firm of chartered surveyors to improve functionality to allow the rollout of the TRAMPS product to their additional UK offices to replace their legacy system. A new and exciting development for one of our clients has resulted in a new Web Executive module to allow internet access to information by clients and tenants and this module is being further developed for Colliers CRE. Our Facilities Management module for o6ix has been further developed in partnership with a major client and o6ix now also incorporates Insight, our web executive information system. We have continued to focus on the appearance of our products and to improve usability as well as extending our ability to upload data from other systems. In the near future we will be releasing multi-lingual versions of our software, initially for our UK users with European operations.

Third party partnerships remain important to us so that we can offer complementary products and services to improve business processes and reduce operating costs for our clients. To enhance our position we continue to participate in industry initiatives to cement our place as one of the leading suppliers in our sector. We continue to invest in marketing, including telemarketing, and as a result we have a significant number of prospects in all our sectors which we believe will give us a good start to the coming year.

Trace Financial has had a satisfactory year, maintaining its turnover and contribution at similar levels to last year even though financial institutions, especially those in wholesale banking, have continued to defer decisions and cut costs, particularly in the area of IT.

The main products within Trace Financial's portfolio remain Cloverleaf, our hub based message handler, Transformer, which provides sophisticated message definition and transformation functionality, and CAMS, our corporate actions system. In all cases we have continued to invest to ensure these products are highly configured and featured. Our services remain centred around the areas of general messaging and integration products, Crest and SWIFT messaging and real-time money broking systems.

In the last financial year Trace Financial has gained new clients with Transformer and two of these could lead to significant new business in the future. Cloverleaf has remained our flagship product and has provided major on-going service revenue as well as a number of prestigious new users. We have recently successfully completed a major CAMS upgrade and this is now running live at one of our users. We have high hopes of securing a significant new order. In all cases our aim is to provide a service second to none and to be known as experts in the area of financial messaging. This will put us in a position where all our clients can provide reference sites and are the source of on-going revenue.

Our commitment to the financial sector is widely recognised and this is demonstrated by our having gained SWIFTReady gold accreditation for a seventh consecutive year. Bespoke development continues to be a major area of activity and recently we assumed responsibility for Datawise, which previously traded as a separate company within the group. We believe that all the pieces are in place for growth and as a result have invested heavily in sales and marketing. We are seeing a major increase in activity, our prospective business book looks healthy and with a small improvement in market conditions we expect to see Trace Financial become a major and growing contributor to the group's fortunes.

Trace Employer Services operates within the outsourced Managed Payroll sector and a fundamental yardstick by which companies in this sector is measured is customer satisfaction. In 2004/05 the company enjoyed its highest ever satisfaction rating from its annual Customer Survey and for the second year running there were no customer losses caused by inadequate service. The number of customers willing to act as references to prospective customers continues to grow. A review of our internal processes and procedures is an on-going exercise and improvements in our software are enabling the productivity and quality of the payroll processing side of the business to increase further. The payslips produced per head figure is now estimated to be the highest in the industry, with no fall-off in quality.

One of the highlights of the year was the partnership agreement with Blick (part of the Stanley Security Solutions Group), who are the country's leading supplier of time and attendance systems. Each company will market the other's services to their prospects and customers and Trace also took over responsibility for managing the payroll of the Blick employees in the UK and the 15 organisations previously managed by the Blick in house team. The selection of Trace by Blick was a testament to the strong reputation that we enjoy for providing consistently high quality payroll solutions. This agreement was followed shortly afterwards by a similar deal with Snowdrop Systems, a leading HR software solutions provider. These agreements mean that Trace can now compete with its larger competitors by offering a wide range of managed payroll, HR and Time and Attendance solutions.

The last two legacy non-payroll customers continued to use our services throughout the year as their plans to transfer their applications in-house have stalled, though both are expecting to be in a position to run their own systems internally before the end of 2005/06.

Payroll continues to be one of the few proven business process outsourcing success stories of recent times and interest in the concept remains high. The combination of improved technology, lower costs and reduced risk is now appealing to organisations of all sizes, whereas in the past it was only considered relevant to the larger ones. We have built the base and have the infrastructure in place to support a much larger managed payroll operation and we now have a larger sales team to take advantage of this solid base. Confidence within the company is high that increased sales and turnover will follow and that this area will be a solid and growing contributor to the group results in future years.

Prospect, our specialist recruitment and staff placement business, had a good second half, considerably improving on its performance in the previous six months. The recovery forecast in the recruitment market started at the beginning of the calendar year and there was a significant upturn in client requirements, together with an increased urgency to have the vacancies filled, which reflected their renewed confidence in the economy.

The increased business has primarily been in permanent placements as the cost effectiveness of using contract staff has continued to be tightly reviewed by major clients, resulting in a downward pressure on rates and a subsequent reduction in contract requirements and profits. Whilst Prospect is reliant on its clients' continued confidence and growth in their respective markets, the company will look to grow its areas of specialisation in the new financial year to cover the recruitment of accounting and financial professionals together with technology related sales and marketing roles. This expansion in services together with the general upturn in the recruitment business should enable Prospect to improve its performance in the coming business year.Download the document now 245.1 kb (Adobe Acrobat Document)

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