Tuesday, 29 September 2009

Vero Software – battling on, but will it be bought?

(By Philip Carnelley, 29 Sep 2009, 09:00) AIM-listed Vero Software, specialist producer of CAD software for mould and die manufacturers, has reported flat revenues in its interims to 30 June, of £6.6m. We know from our research that selling to manufacturing is tough right now: Vero called it “the worst downturn in the manufacturing sector for decades.” One of its key sectors is automotive, which as we all know has had a particularly bad time. So Vero’s done pretty well to maintain revenues. Operating profit fell, in part due to restructuring/cost cutting and the development and launch of a new version of the product (the company capitalises software production). It's also paying more interest on bank financing as it breached a covenant last year and had to renegotiate. New facilities are 'being pursued'. Good news is that EBITDA rose 19% to £0.6m and £1.3m cash was generated in the half year.

Vero’s resilience in the face of downturn is due to several factors: judicious cost-cutting before it’s too late; recurring revenue base (now over 50%); a spread of target sectors and geographies; and a sales proposition that works even in a sector as hard hit as automotive: helping cost savings efficiency. The company observes that its clients “continue to design, plan and produce new models to sharpen their competitive edge” – and indeed Vero is doing the same. What the future holds is dependent on two things. The first is macroeconomic recovery. The second is external forces: the company reports it had a provisional approach a couple of weeks back from ‘a financial institution’ which may lead to an offer for the company. It certainly looks to have potential 'as market conditions improve' - we await a more definite outcome.

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