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November 28, 1995

SANDERSON TURNS ITS ATTENTION TO MARGINS AS ACQUISITION CANDIDATES DWINDLE

By CBR Staff Writer

There seems to be no end in sight to Sanderson Electronics Plc’s predatory instincts, but chairman Paul Thompson insisted that the priority this year was to improve margins, and therefore, profits. The Sheffield application software company went to the trouble of advertising in the Financial Times earlier this year, inviting companies for sale to contact Sanderson. New chief executive Christopher Winn said that resulted in about six businesses Sanderson would monitor over the next two years, and who knows, something may happen in that period, he added (CI No 2,796). Thompson revealed that the company had in fact completed a small acquisition last week, but would not give details. Sanderson’s main market sectors are manufacturing, local government, hotels, health care and the process industries. During the year, a majority stake in Sanderson Pacific Ltd was taken, later upped to 82%. Sanderson had held 25% since 1989, and the extra 57% cost it around ú4.5m in cash, shares and loan notes. In June, it also increased its holding in Commercial Systems Ltd, which it bought from ICL Plc, to 100%, for ú2.2m in cash and shares, making the total paid ú2.6m. The UK accounts for about 75% of Sanderson’s revenues, and the majority of the subsidiaries performed well during the year. Thompson said some of them are capable of doing better, but would not reveal the culprits. The ú2m annual marketing costs in the UK go mainly on the sponsorships of two Premier League football teams, Sheffield Wednesday and Southampton, as well as roadshows. The four-year deal with Sheffield Wednesday ends this season, overlapping with the four-year deal signed with Southampton at the start of the season. The latter looks like repeating its annual flirtation with relegation, which would deprive the club of the essential worldwide television coverage afforded the English game. However, Thompson was not going to get sentimental about Southampton, saying he would just have to find a club less likely to go down. The other area of business is the Pacific Rim, with Sanderson Pacific, which operates in Australia, New Zealand, Singapore, Hong Kong, Malaysia, and it also has a small presence in Worthington, Ohio.

Sanderson Pacific

But the group turned in not as good a performance as we would like to see, said Thompson. He was referring mainly to contract delays, with significant orders not being tied up until after the year-end. The company as a whole has a target of a minimum 10% return on sales, which it was slightly under this time. The main culprit was Sanderson Pacific. Thompson emphasised the room for margin improvement, saying continually bolting on acquisitions to achieve growth tends to make investors wary – what if the pool of possible acquisitions dries up? However, Thompson also said there is an argument for buying out one of the minorities at the moment. Research and development, which is written off in the year incurred, came to ú5.8m, up from ú2.6m last time. Goodwill-write offs came to ú5.3m net in the year, comprising ú1.9m from Commercial Systems, ú3.7m at Sanderson Pacific and ú300,000 for other software packages and bolt-on acquisitions, partially offset by a ú600,000 gain. The low-tech, high-tech company as Thompson described Sanderson had room for improvement in the future and that bodes well. The final dividend of 1.8 pence makes a total of 3.4 pence for the year, up 21% on last time. The company will pay an interim dividend for the first half of the current financial year of 1.9 pence.

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