Murgitroyd Group PLC Preliminary Results (1972Y)

TIDMMUR

RNS Number : 1972Y

Murgitroyd Group PLC

07 September 2015

7 September 2015

Murgitroyd Group PLC ("the Group")

Preliminary Results for the year ended 31 May 2015

The Group (AIM:MUR), is pleased to announce its audited results for the year ended 31 May 2015.

Highlights

   --      Revenue increased to GBP39.8m (2014: GBP38.4m) 
   --      Profit before income tax increased to GBP4.16m (2014: GBP4.10m) 
   --      Basic earnings per share of 35.0p (2014: 33.2p) 

-- Proposed final dividend of 10.5p per share, giving a total dividend for the year of 14.75p (2014: 13.25p), an increase of 11.3% year on year

   --      Net cash of GBP0.71m (31 May 2014 net debt: GBP0.38m) 

Ian Murgitroyd, Chairman of Murgitroyd Group PLC said:

"We are pleased to be able to report an increase in pre-tax profits to GBP4.16m together with record revenues of GBP39.8m, the latter continuing the Group's record of unbroken revenue growth since its flotation in 2001. We are also reporting for the first time a positive net cash position at the year end.

"Increased revenues continue to be achieved through organic growth as a result of our continued investment in infrastructure, people and processes, and a focus on business development. Over the next year we will continue to drive growth in the USA while also increasing our focus on Europe, with the aim of reversing the recent contraction of revenues in this market as economic activity increases.

"Despite the challenging trading environment, these results are encouraging and reinforce the Board's confidence in the Group's ability to deliver sustainable, long-term growth and value for shareholders. This, combined with the Group's strong cash flows, underpins our commitment to a continued progressive dividend policy.

"Trading since the year end has been in line with management expectations. We look to the future with confidence."

For further information, please contact:

   Keith Young, Murgitroyd                                                 T: 07802 951913 
   Sandy Fraser, N+1 Singer (NOMAD and Broker)               T: 0207 496 3000 
   Nadja Vetter/Emma Crawshaw, Cardew Group                 T: 0207 930 0777 

Murgitroyd Group PLC

Chairman's Statement

Financial review

During 2015 the Group generated record revenue of GBP39.8m, an increase of 3.8% over the previous year. This continues the record of unbroken revenue growth since the Group's flotation in 2001, with pre-tax profits increasing to GBP4.2m (2014: GBP4.1m).

Importantly 2015 saw a return to year-on-year earnings growth, after unfavourable foreign exchange rate movements contributed to earnings falling back in 2014, the only decline since flotation.

Revenue growth continues to be driven organically by the Group's ongoing investment in business development, principally in the USA where revenue from US clients increased by more than 20% year-on-year to GBP15.7m. The USA now represents almost 40% of the Group by revenue.

This growth was partially offset by a further contraction of GBP0.9m in revenues from the Group's longstanding UK client base which once dominated the business. Revenue from UK clients peaked at GBP19.5m in 2011. The return to growth in this market, and in Europe more generally, is an area of strategic focus for the Group in the medium term.

The Group remains committed to its strategy of achieving sustainable long-term growth, through continued investment in its business development, sales and marketing.

Gross profit was unchanged year-on-year at GBP22.1m, with the gross margin percentage decreasing slightly to 55.4% (2014: 57.6%). This continues to reflect the ongoing changes in our client and sales mix highlighted previously, as well as the continuing price pressure in the market for professional Intellectual Property advisory services.

Operating profit increased by 1.2% reflecting a strong focus on controlling costs. Administrative expenses reduced to GBP17.9m (2014: GBP18.0m).

Profit before tax increased by 1.5% to GBP4.2m (2014: GBP4.1m); the result of the organic revenue growth and good control of overheads, offset by the impact of the reduction in gross margin.

Basic earnings per share increased to 35.00p (2014: 33.16p) as a consequence of the growth in profit and a reduction in applicable corporate tax rates. The Group's effective tax rate decreased to 24.9% (2014: 28.0%) principally as a result of the continuing decline in UK corporate tax rates.

Net cash flow from operating activities was GBP2.5m (2014: GBP2.9m) and, for the first time since flotation, the Group is reporting a positive net cash position at the year end. At 31 May 2015, net funds stood at GBP0.7m (31 May 2014: net debt: GBP0.4m).

Operating review

As we reported at the time of our interim results, the Group's operating businesses continue to service clients from fifteen offices in eight countries, with all operations rebranded as "MURGITROYD" on 1 July 2014.

In my Chairman's Statement last year I highlighted that Edward Murgitroyd had taken on day-to-day leadership of the management teams of the operational businesses during the preceding year. Reflecting this, Edward was appointed Chief Executive Officer of the MURGITROYD operating subsidiaries in October 2014, and, with his management team, has led the continued investment in both revenue growth and internal efficiencies.

The return on the investment from business development and marketing is evidenced by the increase in reported revenue, whilst the return on our investment in systems and processes is demonstrated by the increase in revenue being achieved in parallel with a reduction in overall headcount.

At 31 May 2015, the Group employed 240 people, down from a peak of more than 260. This reduction is anticipated to continue in the new financial year through further internal efficiencies. Total staff numbers have been reduced by six since the end of the financial year.

As well as a reduction in overall headcount, notwithstanding continuing growth in revenue, the number of qualified Attorneys required, and employed, by the Group also continues to fall, reflecting the transfer of a number of revenue-generating areas from Attorneys to paralegals, specialist formalities staff, and Patent and Trade Mark Administrators. At 31 May 2015 the Group employed 61 qualified Attorneys and generated GBP39.8m revenue in the year to that date. This compares with a qualified Attorney complement at 31 May 2009 of 70, the end of a financial year in which the Group's total revenue was more than GBP10m lower at GBP29.4m.

The Group will continue to recruit and train paralegals, specialist formalities staff, and Patent and Trade Mark Administrators whilst at the same time restructuring how it delivers services to clients to generate greater efficiencies. This restructuring is on course and remains a key component of the Group's strategy of continuing to grow both revenue and earnings.

The market

The markets in which MURGITROYD operate showed steady growth in the period under review. As reported in the Interim Results, statistics available from the European Union's Office for Trade Marks and Designs ("OHIM") continue to show an increase in Community Trade Mark ("CTM") applications and a stable demand for Registered Community Design ("RCD") applications. The year-on-year growth in CTM applications, to 31 May 2015, was 4.4% whilst RCD applications were unchanged.

The European Patent Office's ("EPO") most recent published statistics for the calendar year 2014 report an annual increase of 3% in European Patent applications to 273,000, which is an all-time high. As also reported in the Interim Results, the composition of these filings very much reflect MURGITROYD's experience, with applications from the USA increasing by 6.7%, Japanese originating applications falling by 3.8% and European originating applications remaining virtually unchanged.

As stated previously, we continue to monitor developments concerning the introduction of the new European Unitary Patent, which is still expected to be ratified by sufficient member states of the European Union ("EU") and enter into force during the course of 2017.

OHIM's and the EPO's statistics are considered good indicators of the current state of the market in which the Group operates. However, whilst the market as a whole remains buoyant as measured by the numbers of Patents and Trade Marks being filed, price pressures remain. Critically assessing and investing in improvements in the Group's working practices, service delivery and cost control remains a priority.

Although we are monitoring any impacts that the outcome of the proposed referendum on the UK's membership of the EU may have on the business, we are confident that the geographic spread of the Group's activities and customer base will enable us to deal with any resultant changes or uncertainties.

Board

The Group announced in February 2015 that non-Executive Director David Gray had resigned from the Board. In that announcement David's contribution to the Group was acknowledged and the Board wishes him well for the future. I am pleased to report that, as announced in August 2015, Dr Christopher Masters and John Reid have been appointed as non-Executive Directors. On 12 August 2015 the Board was further enhanced by the appointment of an additional Executive Director, Gordon Stark, MURGITROYD's Chief Operations Officer. I am delighted to welcome them all. Christopher and John will both add to the breadth and depth of commercial expertise and public company experience of the Board, whilst Gordon brings operational, as well as IP industry, insight.

Consistent with the new Board appointments and the previously announced reduction in my executive role, I intend to move from being Executive to non-Executive Chairman during the current financial year, at which point the Board will comprise five non-Executive and four Executive Directors.

Share price

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September 07, 2015 02:00 ET (06:00 GMT)

During the period, the middle market price of the company's shares fluctuated between 461p and 628p. The current middle market price is 520p.

Dividend

An increased interim dividend of 4.25p per share was paid during the year, reflecting the Board's confidence in the performance of the Group. The near elimination of Group borrowings, and the net funds position as at 31 May 2015 noted above, provides flexibility for the Board to sustain a more progressive dividend policy. A final dividend of 10.5p per share is therefore being proposed, giving a total dividend for the year of 14.75p (2014: 13.25p), an increase of 11.3% year-on-year.

Subject to approval at the Annual General Meeting, the final dividend will be paid on 13 November 2015 to shareholders on the register on 2 October 2015. The ex-dividend date is 1 October 2015.

Outlook

In the context of a continuation of the challenging trading environment, these results are encouraging and reinforce the Board's confidence in the Group's ability to deliver sustainable, long-term growth and value to shareholders through ongoing investment and our established market presence. We are pleased to report that trading since the year end has been in line with management expectations.

Ian G Murgitroyd

Chairman

7 September 2015

This preliminary announcement was approved by the Board of Directors on 7 September 2015.

Consolidated statement of comprehensive income

for the year ended 31 May 2015

 
 
                                     Note       Year       Year 
                                               ended      ended 
                                              31 May     31 May 
                                                2015       2014 
                                             GBP'000    GBP'000 
 
 Revenue                                      39,819     38,353 
 
 Cost of sales                              (17,750)   (16,268) 
                                           ---------  --------- 
 
 Gross profit                                 22,069     22,085 
 
 Administrative expenses                    (17,887)   (17,952) 
                                           ---------  --------- 
 
 Operating profit                              4,182      4,133 
 
 Financial income                                  3          4 
 Financial expense                              (22)       (37) 
                                           ---------  --------- 
 
 Profit before income 
  tax                                          4,163      4,100 
 
 Income tax                                  (1,039)    (1,150) 
                                           ---------  --------- 
 
 Profit for the year attributable 
  to equity holders of 
  the parent                                   3,124      2,950 
                                           =========  ========= 
 
 Other comprehensive income 
 
 Items that will not be 
  reclassified to profit 
  or loss: 
  Revaluation of property, 
   plant and equipment                             -         50 
 Items that are or may 
  be reclassified subsequently 
  to profit or loss: 
  Foreign exchange translation 
   differences 
   - equity accounted investments                 75      (118) 
                                           ---------  --------- 
 
 Profit for the financial 
  year and total comprehensive 
  income all attributable 
  to equity holders of 
  the parent                                   3,199      2,882 
                                           =========  ========= 
 
 Earnings per share                   2 
 
 Basic                                        35.00p     33.16p 
 Diluted                                      34.51p     32.67p 
 
 

Consolidated balance sheet

at 31 May 2015

 
                                   31 May      31 May 
                                     2015        2014 
                                  GBP'000     GBP'000 
 Assets 
 Non-current assets 
  Property, plant 
   and equipment                    2,360       2,462 
  Intangible assets 
   and goodwill                    14,924      14,936 
  Deferred tax asset                    -          28 
                                ---------  ---------- 
 Total non-current 
  assets                           17,284      17,426 
                                ---------  ---------- 
 
 Current assets 
  Work in progress                    254         671 
  Trade and other 
   receivables                     16,086      14,515 
  Taxation recoverable                 12         125 
  Cash and cash 
   equivalents                      1,617       1,457 
                                ---------  ---------- 
 Total current assets              17,969      16,768 
                                ---------  ---------- 
 Total assets                      35,253      34,194 
                                ---------  ---------- 
 
 Current liabilities 
  Other interest-bearing 
   loans and 
   borrowings                       (304)       (795) 
  Trade and other 
   payables                       (5,980)     (5,998) 
 Total current liabilities        (6,284)     (6,793) 
                                ---------  ---------- 
 
 Non-current liabilities 
  Other interest-bearing 
   loans and 
   borrowings                       (607)     (1,045) 
  Deferred tax liabilities           (21)           - 
                                ---------  ---------- 
 Total non-current 
  liabilities                       (628)     (1,045) 
                                ---------  ---------- 
 Total liabilities                (6,912)     (7,838) 
                                ---------  ---------- 
 Net assets                        28,341      26,356 
                                =========  ========== 
 
 Equity 
  Share capital                       893         893 
  Share premium                     3,368       3,368 
  Merger reserve                    6,436       6,436 
  Revaluation reserve                  47          47 
  Foreign currency 
   translation reserve               (43)       (118) 
  Retained earnings                17,640      15,730 
                                ---------  ---------- 
 Total equity attributable 
  to equity 
  holders of the 
  parent                           28,341      26,356 
                                =========  ========== 
 
 

Consolidated statement of cash flows

for the year ended 31 May 2015

 
                                      Year       Year 
                                     ended      ended 
                                    31 May     31 May 
                                      2015       2014 
                                   GBP'000    GBP'000 
 Cash flows from operating 
  activities 
 Profit for the year                 3,124      2,950 
  Adjustments for: 
    Depreciation                       285        255 
    Amortisation                        52         65 
    (Gain)/loss on disposal 
     of property, plant and 
     equipment                           -       (15) 
    Other reserves movements            75      (118) 
    Financing costs                     19         33 
    Income tax expense               1,039      1,150 
                                 ---------  --------- 
 
                                     4,594      4,320 
 Increase in trade and other 
  receivables                      (1,571)      (647) 
 Decrease/(increase) in 
  work in progress                     417       (48) 
 (Decrease)/increase in 
  trade and other payables            (20)        302 
 Decrease in provision for 
  liabilities                            -       (55) 
                                 ---------  --------- 
 
                                     3,420      3,872 
 Interest paid                        (21)       (43) 
 Interest received                       3          4 
 Income tax paid                     (896)      (947) 
                                 ---------  --------- 
 
 Net cash from operating 
  activities                         2,506      2,886 
                                 ---------  --------- 
 
 Cash flows from investing 
  activities 
  Acquisition of property, 
   plant and equipment               (150)      (320) 
  Acquisition of intangible 
   fixed assets                       (40)       (87) 
  Proceeds from disposal 
   of property, plant and 
   equipment                             -         15 
 
 Net cash used in investing 
  activities                         (190)      (392) 
                                 ---------  --------- 
 
 Cash flows from financing 
  activities 
  Proceeds from exercise 
   of share options                      -        145 
  Repayment of borrowings            (929)    (1,054) 
  Dividends paid                   (1,227)    (1,113) 
                                 ---------  --------- 
 
 Net cash used in financing 
  activities                       (2,156)    (2,022) 
                                 ---------  --------- 
 
 Net increase in cash and 
  cash equivalents                     160        472 
 Cash and cash equivalents 
  at start of year                   1,457        985 
                                 ---------  --------- 
 
 Cash and cash equivalents 
  at year end                        1,617      1,457 
                                 =========  ========= 
 
 

Notes to the announcement:

   1.         Basis of preparation 

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