Murgitroyd has now released its interim results for the year ending 2016
the year ending 2016.
Revenues increased by £1.1M when compared to the first half of last year and with a £572K growth in cost of sales, gross profit increased by £528K. There was a small fall in amortisation but other admin expenses were up £429K to give an operating profit £121K ahead of the first half of 2015. Tax and finance costs were broadly flat so that the profit for the half year came in at £1.6M, a growth of £119K year on year.
When compared to the end point of last year, total assets grew by £653K driven by a £502K increase in work in progress and a £192K growth in tax recoverable. Total liabilities were broadly flat over the past six months as a £204K decline in borrowings was mostly offset by a £126K growth in payables. The end result is a net asset level (excluding goodwill) of £14.2M, an increase of £742K over the past six months.
Before movements in working capital, cash profits were broadly flat, up just £38K to £2.3M. There was an outflow of cash through working capital movements, in particular an increase in work in progress and the tax paid increased considerably, up £458K to give a net cash from operations of £1.1M, a decline of £514K year on year. There was only a net £73K spent on capex which meant the group had a free cash flow of £1M, of which £938K was spent on dividends and £207K was used to pay back loans to give a cash outflow of £25K for the first half of the year and a cash level of £1.6M at the period-end.
The OHIM stats show that there was an increase in CTM applications with 130,000 applications filed compared to 117,000 in 2014. Applications in the US increased by 6.7%, Japanese applications fell by 3.8% and European applications remained flat year on year.
Overall trading in the first half of the year has been in line with market expectations. Of the £1.1M increase in revenue, just under half was generated by the global support services business. Client wins in this area has resulted in first half revenue at the business increasing by nearly £2M over three years and now representing some 34% of total revenue, up from 28% back in 2012 and further growth in this area is anticipated. The rest of the increase in revenue was produced by the Attorney Practice groups, with productivity gains mentioned previously in this area having continued into this year.
The group continues to see strong growth in the US market where revenue has grown by 18% year on year, reflecting the investment in business development there and revenue from the country now accounts for 43% of the total. The US continues to be an important growth market and Murgitroyd’s growing presence there continued to offset weaker demand in Europe.
In December, the EPO announced that its Select Committee representing the EU member states participating in the new Unitary Patent had formalised a series of agreements into a complete secondary legal framework comprising the implementing rules, budgetary and financial rules, the level of the renewal fees and the rules concerning the distribution of the renewal fees between the EPO and the participating member states. With the adoption of these rules, the EPO considers that preparations for the new UP are complete. The only remaining steps are the opening of the Unified Patent Court and the finalisation of the ratification process at national level which it hopes will take place this year. So far, six countries, including France, have ratified. It is expected that the group’s established presence in six EU countries, including France, Germany and the UK, means it is uniquely placed to service clients in this Changing European IP landscape but no other potential effects are disclosed.
The group are monitoring any impacts from the outcome of the proposed referendum on the UK’s membership of the EU may have on the business and are confident that the geographic spread of the group’s customer base will enable it to deal with any resultant changes. Nevertheless, this must be a key risk to the group over the coming year.
Dr. Christopher Masters and John Reid were appointed as non-executive directors in August and the board was further enhanced by the appointment of an additional executive director, Gordon Stark, as COO.
Trading since the reporting date has been in line with management expectations.
At the current share price the shares are trading on a PE ratio of 16.5 which reduces to 15.7 on the full year forecast. After an 11.8% increase in the interim dividend, the shares have a yield of 2.7% increasing to 2.8% on the full year consensus forecast. At the half year point, the net cash position was £890K compared to £290K at the same point of last year.
Overall then this was a pretty decent half year period for the group. Profits were up and net assets increased but the operating cash flow declined, although this was as a result of an increase in work in progress and a big growth in tax paid and cash profits were flat. There was a decent amount of free cash produced and overall trading was in line with expectations. Both the Attorney Practice and Global Support divisions increased as a strong US offset some weakness in the EU. It is difficult to determine what affect the changing EU IP landscape will have on the group as they haven’t really said but the UK referendum on the EU must be a potential banana skin.
With a net cash position, a forward PE of 15.7 and yield of 2.8% these shares are probably priced about right. Trading does seem to be improving but it is hard to get excited about prospects, perhaps due in part to the lack of detail around current trading in the update.
On the 24th June the group announced an acquisition and a trading update. They acquired Dallas-based MDB Capital and Patentvest SA. The consideration of $2.43M was paid on completion and will be part-funded through a new term loan facility. The transaction is expected to be earnings neutral in its first year with the business generating revenues of $860K last year. Overall, the board expect to report revenues of more than £42M for the year and pre-tax profit broadly in line with market expectations (slightly below then).