The disposal of the Sanderson RBS EPOS business to Torex at the start of the year (see here) that generated a cash injection of £11.75m and put Sanderson Group onto a more secure financial footing appears to have increased levels of confidence despite the challenging UK market.
In its interim statement for the six months to March 31 2012, Sanderson reported revenue from continuing operations of £6.14m (vs £7.04) but has pulled operating profit up from £0.75m to £0.8m and the gross margin from 81.4% to 84.3%. Reassuringly, it is generating cash with £3.5m in the bank compared to debt of £7.23m a year ago.
There are plenty of strong operational signs, from a beefier order book that should translate into sales in H2, to recurring revenue of £3.79m for the half year. Recurring revenue amounts to 62% of total revenue and covers 80% of overheads, which emphasises the importance of this type of revenue particularly against the background of the tough UK retail market. The company needs a further £7m in revenue during H2 to cover costs but it goes into H2 with £3.87m of recurring revenue and an £2m order book, leaving just £1.2m to find. That all bodes well for H2. However, only 5% of revenue comes from new customers so it needs to boost this line.
For a company undergoing transition, Sanderson’s results are encouraging and its business model (offering more of its own software IP, combined with third party products, delivered, serviced and supported by Sanderson) holds promise. Software suppliers need to do more than offer software these days (see Enterprise Software Market Trends and Forecasts 2012) and by providing a portfolio plus services Sanderson is expanding its base. That can be a costly business, especially for a business of its size, so its challenge will be keeping costs in check.