EDP ready to ride out the uncertain times

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SOFTWARE firm Electronic Data Processing said it maintained annual profits and sales amid tough markets, but warned confidence has been replaced by uncertainty among many of its customers.

However, the Sheffield-based company, which designs, sells and licenses software for merchants and distributors, said it is robust enough to ride out uncertainties ahead.

EDP said turnover in the year to the end of September was broadly flat at £5.6m. Pre-tax profits of £896,000 were boosted by a one-off profit from the sale of its former headquarters, which generated a £335,000 exceptional gain. Adjusted operating profits were £689,000, versus £704,000 a year earlier.

“Whilst economic conditions remain difficult, we will continue to manage the business prudently,” said chief executive Julian Wassell. “We remain committed to delivering quality software products which will generate recurring revenues for the business for years to come.

“We are confident that with a well-managed, profitable, debt-free and cash generative business we are well placed to ride out any current uncertainties.”

Chairman Michael Heller said its markets remain “extremely tough” due to the weak UK economy. This is hitting customers’ spending plans, he said, but added EDP’s flat revenues were an achievement in this climate. EDP plans a 2p per share final dividend, giving a 2.713p total payout, level with last year.

“Signs of optimism that we saw in our markets last year have been replaced by uncertainty due to the very real prospects of the UK entering into another recessionary period,” he said.

“As a result, our customers remain cautious about expenditure generally. However, our business model is robust and the strength of our product offering means that we are well-placed to ride out any current uncertainties.”

Mr Wassell said customers are “examining all areas of expenditure” to keep costs down, and this has meant downward pressure on prices. However, he added EDP has been able to hold off major price cuts because its products allow “a degree of differentiation”.

“The fact that we have been able to maintain our margins in a price deflationary environment is reassuring,” said Mr Wassell.

EDP’s products are used by a range of small to medium-sized enterprises (SMEs) including builders’ merchants. Its Quantum VS product is a telesales, enquiry-management and order-processing tool.

The company also offers remote hosting, where it manages a company’s data externally, a solution which it says cuts hardware and maintenance costs. It has a secure data-hosting centre in Milton Keynes.

EDP grew hosting revenue during the year to 34 per cent of turnover, from 30 per cent a year earlier. It now hosts data for 117 customers, up from 97 a year earlier.

“We have seen record numbers of customers choosing us to host their applications, ensuring that healthy margins and strong cash flows have been maintained,” said Mr Wassell.

Contracted recurring revenues now make up 79 per cent of sales, from 77 per cent in 2010.

The company employs about 70 staff. It ploughed £892,000 into research and development during the year, and plans to invest a similar amount this year. The money was spent on enhancing Quantum VS and Vecta, its two latest software tools.

EDP said it kept a close eye on working capital and cash collection. Bad debts were “minimal” during the year and the company added no single customer accounts for more than six per cent of its business. Its 10 largest customers make up less than 30 per cent of turnover.

While four of its smaller customers went into receivership during the year, unrecovered debts stood at just £8,000.

Following the sale of its headquarters, EDP ended the year with cash of £5.1m from £2.8m a year earlier.

The company recently moved its Sheffield head office to a city centre site at Fountain Precinct, after selling its Beauchief Hall former head office for £2.4m in 2010. It is saving £60,000 annually from the move.