Although a flat UK market may have held back growth at Learmonth & Burchett Management Systems Plc, year-end profits still increased five-fold, enabling the group to return to the dividend lists after a two-year absence. For the year ending April 30, the software engineering tools, consultancy and training company saw pre-tax profits surge 431.4% to UKP1.6m, on turnover that grew 10.5% to UKP23.6m. Chief financial officer Neil Davies put the marked increase in profits down to several factors. First, the London-based firm held the cost base firm despite the increase in sales. Second, the UKP3.8m raised by the January one-for-four rights issue was used to pay off all bank debt, which resulted in interest payments being greatly reduced. This meant that a significant part of turnover flew straight through to profits.
Reserves have been restored
The rights issue, combined with the cash flow from the improved trading performance also resulted in positive cash balances of UKP2.1m. Because Learmonth’s reserves have been restored, it is now in a position to pay all arrears of its preference dividends and recommend a final ordinary dividend of 0.75 pence per share. Furthermore, chairman Rainer Burchett reckons that overall the process of transforming LBMS into a major international software tools and methods company is continuing on schedule. And he remains firmly committed to an aggressive growth plan. Overseas revenues, which increased 50% to UKP9.8m during the year, now make up 40% of total group turnover, up from only 20% two years ago. Continental Europe was the best performer, with sales up a hefty 168%, although Davies did say the figure was somewhat misleading as it started from a low base. The Far East also saw revenues up 85%, while US turnover grew 50%. Here, Davies said, the firm benefitted from its increasing hold on Fortune 500 companies such as Dun & Bradstreet Corp and H J Heinz Co, because in the US, if a number of significant organisations are seen to buy your product, others will follow. Improved geographical coverage also helped – Learmonth has now increased the number of US sales offices to six from two, including a software development centre in Michigan. On the down side, however, profit margins were down on the group’s stated medium-term aim of 10%, at about 7%. Moreover, Davies said, there were no genuine signs of recovery in the UK market, which resulted in a marginal decline in UK revenues. As a result, the consultancy and training side of the business is focussing on key products and reducing services that are less successful. Consultancy generates approximately 35% of total group turnover, while training makes up a further 15%. Both are generally sold on the back of software sales, which increased 30% if maintenance services are included. Software now comprises 50% of total revenues, up from 43% last year. While Burchett believes Learmonth’s systems engineering tool set is well positioned to take advantage of the downsizing trend especially with today’s release of version 5.0, a Windows-based, client-server offering for multiple users – he realises that the difficult and uncertain economic climate in many of our markets does create the risk that our profit growth year to year may be less uniform than we would ideally like.
