Electronic Data Processing : Interim Results - 6 months to 31 March 2017

22 June 2017

Electronic Data Processing PLC (EDP) Half-year results - 6 months to 31 March 2017

EDP is an IT solution provider to the UK wholesale distribution industry and a supplier of Sales Intelligence software solutions more widely.

Financial Highlights

• Turnover £2.54 million (2016: £2.51 million)

• Adjusted operating profit increased by 8.3% to £260,000 (2016: £240,000), resulting in an operating margin of 10.2% (2016: 9.6%)

• Hosting revenues represent 61% of total revenues (2016: 58%)

• Contracted recurring revenues represent 80% of total revenues (2016: 81%)

• R&D expenditure amounted to £461,000 in first half (2016: £500,000)

• Sale of last remaining surplus freehold property in Milton Keynes completed in December 2016 for £1.2 million

• Strong, debt-free balance sheet with total cash balances of £6.7 million

• Interim dividend of 2p per share, the same as last year, returns £254,000 to shareholders

• Strategic review is continuing and EDP remains in discussions with a single party. The Company will update shareholders further when it is in a position to do so.

Sir Michael Heller, Chairman of EDP, said:

"Whilst trading conditions remain competitive, the second half has started well and we remain confident about the outlook for the remainder of the year."

-Ends-

For further information please contact:

Julian Wassell	James Storey	Toby Mountford
Chief Executive	Finance Director	Citigate Dewe Rogerson
0114 262 2010	0114 2622010	020 7638 9571 07710 356611

www.edp.co.uk

Chairman's Statement

Turnover for the six months ended 31 March 2017 at £2.54 million was 1.3% up on the same period last year (2016: £2.51 million).

Adjusted operating profit increased by 8.3% to £260,000 (2016: £240,000). This represents an operating margin of 10.2% compared with 9.6% in the prior period. The improvement in operating profit reflects the increase in top line sales and tight control of our costs.

Adjusted operating profit excludes one-off costs and non-cash IFRS adjustments and is the measure the Directors use to monitor the performance of the business on a day to day basis.

Statutory pre-tax profit for the six months was £180,000 compared with £116,000 in the prior year. A reconciliation of adjusted operating profit to statutory pre-tax profit is shown in note 5.

At the full year we reported that we had seen some delays in purchasing decisions by customers around the year end. Whilst trading conditions remain competitive, we have seen an upturn in sales activity levels since the turn of the year and at the date of this statement our overall sales remain ahead of the same period last year.

In line with our long-term strategy, we continue to transition our core business away from our older ERP software products, which we continue to support, to our latest product Quantum VS. New business sales activity remains a priority for us and we have continued to sign new customers for both our ERP solution Quantum VS and our CRM/BI product Vecta.

Product R&D during the period, which is primarily focussed on Quantum VS and Vecta, was

£461,000 (2016: £500,000).

We have continued to pursue our strategy of growing the number of customers who receive their software through our hosting service, strengthening our relationships with them, and in turn growing this recurring revenue stream. During the first half hosting revenues represented 61% (2016: 58%) of total sales.

Overall contracted recurring revenues, arising from annual software licences and hosting fees, remained strong at 80% of total revenues (2016: 81%) providing us with good visibility.

The tax charge for the period at £34,000 represents an effective tax rate of 19% which compares with 36% in the corresponding period last year. Last year's charge of £42,000 included the effect of a one-off deferred tax charge of £18,000 following a change in the corporation tax rate.

As reported at the full year stage we sold our last remaining surplus property in December 2016 for £1.2 million. As the property's carrying value had been adjusted previously to reflect the agreed sale price this resulted in neither a profit nor a loss in the period under review. The sale generates cost savings of £20,000 per annum. Overall the property disposal strategy which we commenced some years ago has generated more than £7 million of cash and has supported distributions to shareholders of £11 million over that time.

Group net assets were £3.7 million at 31 March 2017 compared with £3.2 million at the end of the previous financial year. The principal reason for the increase was an improvement in the position on the Group's defined benefit pension scheme under IAS 19. During the period, the

liability for the scheme as valued under IAS 19 reduced by £637,000 to £2.59m after deferred tax. The movement included a total actuarial gain of £672,000 after deferred tax, the most significant factor being an increase in the discount rate assumption from 2.2% to 2.6% over the reporting period.

The last full actuarial valuation of the scheme was carried out at 31 July 2013 and showed a small surplus of £62,000. As previously reported, the updated triennial valuation as at 31 July 2016 is underway and is due to be finalised by October 2017. The latest draft valuation report shows a deficit of £490,000. This deficit, as currently identified, suggests a ten-year scheme funding cash contribution of £75,000 per annum. These amounts are provisional and subject to further review and analysis. Once the valuation is finalised shareholders will be updated accordingly.

The assets of the scheme are held in a with-profit Grouped Funding policy. The main difference between the IAS19 valuation and the ongoing funding valuation is that IAS19 requires the Grouped Funding policy to be valued at its discontinuance surrender value at the period end. Conversely, the ongoing scheme funding valuation values the Grouped Funding policy actuarially and takes into account the guaranteed annuity rates secured under the policy. The scheme is closed to further service accrual.

Cash and cash equivalents at the balance sheet date were £6.7 million, up from £5.4 million following the sale of the property referred to above.

We have previously announced that we are carrying out a strategic review of the business and we provided an update on the process to shareholders ahead of the Annual General Meeting in March. The strategic review is continuing and the current situation is that we remain in discussions with a single party. The Company will update shareholders further when it is in a position to do so.

Your Directors have resolved to pay an interim dividend of 2p per share, the same as last year. However, I would reiterate the comment made in March that should the strategic review process not result in an offer being made for the Company, then, subject to any constraints on distributable reserves and rules of the Takeover Code, the Board intends to consider returning an amount of cash to shareholders. The interim dividend will be paid on 1 August 2017 to those shareholders on the register on 30 June 2017. The shares will be ex-dividend on 29 June 2017.

As ever I would like to thank our staff for their hard work and commitment.

Whilst trading conditions remain competitive, the second half has started well and we remain confident about the outlook for the remainder of the year.

Sir Michael Heller	21 June 2017
Chairman

Principal Risks and Uncertainties

We operate in a changing economic and technological environment that presents risks, many of which are driven by factors that we cannot control or predict. The key risks and uncertainties facing EDP and the measures taken to mitigate these risks are as follows:

Systems and networks

Risk

EDP's business operations rely significantly on the efficient and uninterrupted operation of its information technology systems and networks.

Our computer network may be vulnerable to unauthorised access, viruses and other disruptive problems.

Potential impact

Any damage or interruption to EDP's networks, however caused, could have a material adverse effect on the delivery of our products and services.

A party that is able to override security measures could misappropriate proprietary information or cause disruption to our operations.

Mitigation

We continually review and test the security of internal systems and networks and have developed recovery plans in the event of systems disruption. We use a third party to internally and externally scan our network to identify any potential vulnerability.

Where reliance is placed upon externally provided systems and networks we undertake regular performance ability reviews and ensure that contracts provide for an appropriate level of service maintenance.

Product technology advances

Risk

The markets in which EDP operates are characterised by evolving technology, market practices and industry standards.

Potential impact

Competitors could develop superior products or more cost-effective techniques which could render our products uncompetitive or less acceptable to the market. This could result in the loss of new revenue opportunities, the non-renewal of contracts by existing customers or the failure of users of our legacy applications to migrate to Quantum VS.

Mitigation

We have an ongoing commitment to research and development which allows us to identify and adapt to any technological and market changes that do occur thereby ensuring that our products continue to meet the demands of our customers.