Sagentia Group is an international technology consulting company providing outsourced R&D consultancy services from market analysis, through product development to transfer-to-manufacturing for the medical and commercial sectors.
Commenting on the results, Martyn Ratcliffe, Chairman, said: "Over the past year Sagentia has continued to build on the turnaround achieved in 2010 and has delivered a very satisfactory performance. Despite the deteriorating macro-economic environment in the year, revenue increased by 13.2% to £23.6 million and profit before tax from continuing operations increased by 55.5% to £3.3 million, representing a margin of 14.2% (2010:10.3%). With considerable tax losses carried forward, the Group has minimal tax liabilities and the net profit from continuing operations in 2011 was £3.3 million (2010: £2.3 million).
"The Group balance sheet continues to be very strong with Shareholders Funds of £26.4 million (2010: £22.8 million), approximately equal to the sum of the Group’s cash balances and the carrying value of the Group’s freehold property in Harston, near Cambridge net of the associated bank loan. Cash conversion has been good and all minority investments to which the Board attributed any value have now been realised. As a result, cash balance at 31 December 2011 was £21.2 million (2010: £16.4 million) and net funds were £14.1 million (2010: £8.6 million).
"Operating profit in 2011 increased by 53.6% to £3.9 million and operating margins increased to 16.6% (2010: 12.2%) which, for a technology consultancy business of Sagentia’s size, the Board considers to be towards the upper end for a balanced performance/investment profile. The Board is committed to balancing operating margin and investment in order that the Group’s performance is sustainable and shareholder value is enhanced over the medium term."
Summary:
•Revenue growth of 13% to £23.6 million (2010: £20.8 million)
•Operating profit increased by 54%. Profit before tax increased by 55%
•Profitability in-line with upgraded market expectations
•Operating profit of £3.9 million (2010: £2.5 million).
•PBT from continuing operations at £3.3 million (2010: £2.2 million).
•Net income from continuing operations of £3.3 million (2010: £2.3 million).
•Diluted EPS from continuing operations of 7.3p (2010: 6.8p).
•Strong balance sheet with gross cash balance at 31 December 2011 of £21.2 million (2010: £16.4 million) and net funds of £14.1 million (2010: £8.6 million).
•Proposed tender offer to return up to £8 million to shareholders at 80 pence per share.
Chairman’s Statement (in full)
Over the past year Sagentia has continued to build on the turnaround achieved in 2010 and has delivered a very satisfactory performance. Despite the deteriorating macro-economic environment in the year, revenue increased by 13.2% to £23.6 million and profit before tax from continuing operations increased by 55.5% to £3.3 million, representing a margin of 14.2% (2010:10.3%). With considerable tax losses carried forward, the Group has minimal tax liabilities and the net profit from continuing operations in 2011 was £3.3 million (2010: £2.3 million).
The Group balance sheet continues to be very strong with Shareholders Funds of £26.4 million (2010: £22.8 million), approximately equal to the sum of the Group’s cash balances and the carrying value of the Group’s freehold property in Harston, near Cambridge net of the associated bank loan. Cash conversion has been good and all minority investments to which the Board attributed any value have now been realised. As a result, cash balance at 31 December 2011 was £21.2 million (2010: £16.4 million) and net funds were £14.1 million (2010: £8.6 million).
Operating profit in 2011 increased by 53.6% to £3.9 million and operating margins increased to 16.6% (2010: 12.2%) which, for a technology consultancy business of Sagentia’s size, the Board considers to be towards the upper end for a balanced performance/investment profile. The Board is committed to balancing operating margin and investment in order that the Group’s performance is sustainable and shareholder value is enhanced over the medium term.
Good progress has also been made on the Board’s strategic initiatives during the year. Historically, Sagentia undertook the vast majority of work on a fixed price basis with corresponding risk but, through an active transition programme over the past two years, approximately 90% of client projects are now undertaken on a time-and-materials basis, substantially de-risking the profile of the Group. Furthermore, the Board has also been evolving the Group from a project-oriented consultancy to becoming a more strategic partner with its major customers, resulting in a reduced number of customers but at a greater average revenue per customer. This strategy was further reinforced in September when Sagentia announced a US$10 million multi-year contract with a large US consumer products company to provide outsourced R&D consultancy and product development services.
The Board has also continued to simplify the corporate and operational structure of the Group. Sagentia Group AG, the legacy Swiss holding company, and Catella AB, the former Swedish subsidiary, were liquidated during the year. This has resulted in a reported non-cash charge of £0.7 million in 2011 arising from these discontinued operations. The process of liquidating Sagentia GmbH, the Group’s former German trading company, which has been dormant for some time, has also commenced following the transfer of historic pension obligations to a third party insurer in December 2011. Sensopad Limited has also been dissolved and, in early 2012 application has been made to dissolve Sagentia Sensors Limited. In January 2011, the minority shareholdings in Manage5Nines Limited, the Group’s IT services provider, were acquired and in June 2011, following a review of the Group’s operation in Hong Kong, it was decided to close the facility and service clients from the UK.
In summary, 2011 has been a year of consolidating the turnaround undertaken in 2010 with very satisfactory progress being achieved. In the second half of the year, Sagentia experienced some effects from the deterioration in the macro-economic environment, particularly in the European market and in the Industrial sector. However, given the Group’s greater exposure to North American markets and the Medical sector, the Board remains cautiously optimistic for 2012, although prudence in managing the business will be maintained.
Proposed Tender Offer
Throughout 2009, prior to the current Board being established, the share price of Sagentia Group plc was less than 20 pence per share. On 18 May 2010, the Board announced a Placing at 40 pence per share ("Placing Price") in order to strengthen the Company’s balance sheet and to explore potential merger and acquisition opportunities.
Since 2010, the Board has effected a successful turnaround of the Group. In parallel, a significant number of merger and acquisition opportunities have been evaluated. While several corporate transactions could have been undertaken, to date the Board have not considered that any of the opportunities available would have been beneficial to Sagentia shareholders at the valuations sought by respective vendors.
The Board recognises the limited liquidity for quoted smaller company shares, with Sagentia average monthly volume over the period August 2011 to January 2012 being equivalent to approximately 1.5% of the issued share capital. As a result of this inherent market limitation and the substantial increase in Sagentia’s share price over the past two years, the Board consider it appropriate at this time to provide an opportunity for shareholders who may wish to realise all or part of their investment to do so. Therefore, subject to the requisite shareholder approvals at the Annual General Meeting and to Takeover Panel approval of a waiver of Rule 9 of the UK Code on Takeovers and Mergers the Board are proposing to return up to £8.0 million of cash to shareholders by way of a tender offer for up to 10,000,000 shares. The price of the proposed tender offer will be 80 pence per share, equivalent to a 100% return on the Placing Price and more than four times the highest closing share price through 2009. The average closing mid-market price for the twelve months ended 2 March 2012 was 80.9 pence. The resolutions to approve the tender offer will be included in the notice of the Annual General Meeting which will be sent to shareholders as soon as practicable.
Participation in the proposed tender offer will be entirely voluntary and none of the Directors will be tendering shares. If the tender offer is approved and subject to the level of acceptances received, this action is anticipated to be earnings enhancing. The strategy of the Group will continue to be based on the provision of outsourced R&D consultancy services and the Board will also retain a strong balance sheet to continue to evaluate appropriate merger and acquisition opportunities. In summary, the proposed tender offer provides a realisation opportunity for shareholders seeking liquidity for their investment but is also fair to those shareholders who wish to remain invested in Sagentia. The Board considers this approach to be equitable and in the best interests of all Sagentia shareholders.
Martyn Ratcliffe
Chairman
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Enquiries :
Sagentia Group plc
Martyn Ratcliffe, Chairman
Brent Hudson, Chief Executive
Neil Elton, Finance Director
Tel: +44 (0) 1223 875 200
www.sagentia.com
Numis Securities
Oliver Cardigan / Simon Willis, Nominated Adviser
James Serjeant, Corporate Broking
Tel: +44 (0) 20 7260 1000
Media enquiries:
Abchurch
Henry Harrison-Topham / Jamie Hooper
Tel: +44 (0) 20 7398 7702
[email protected]
www.abchurch-group.com