Delcam sacrifices profits for R&D investment

SOFTWARE supplier Delcam has seen a major fall in annual pre-tax profits, reflecting the tough conditions in markets like Europe and the United States together with its increased investment in research and development.

The Birmingham-based company, which supplies software for product development and manufacturing, recorded profits of £1.1m last year, which compares with £2.3m in 2008.

Delcam said the results were “creditable” considering the difficult trading conditions encountered last year.

In the company’s results statement, chairman Peter Miles, said sales of £31.8m were slightly down on the previous year but were still close to the record high of 2008 and 7% higher than in 2007.

“This creditable result supports our decision to continue to invest significantly in the business and reflects good growth in our newer market sectors and territories,” he said.

“Our policy of offering a wider range of products and services across a broader number of industries, together with our strong balance sheet, puts us in a better position than many of our competitors.

“We continue to view prospects for the business over the long term very positively.”

The company has a global distribution network and its software is used by more than 30,000 organisations across a variety of industries, including aerospace, automotive, footwear, medical and dental, toys and sports equipment.  

Mr Miles said that as the global economic downturn became evident, the company decided to capitalise on its strong financial position and very high levels of recurring income.

“We believed that the company was well-placed to build commercial advantage in the recession by maintaining rather than reducing its high level of investment in product development and marketing.

“Our R&D and marketing expenditure over the period therefore matched last year’s level. This investment strategy helped to move us up the global ranking of developers of NC software and services (by revenue) to third place in 2009, from fourth place in 2008,” he said.

The £9.2m investment in R&D, compared with 2008’s £8.8m, had the inevitable impact on profitability, however, the firm said the decline had been manageable.

“The reduction was in line with expectations and we anticipate profitability moving higher in the current financial year,” added Mr Miles.

He said the group was now looking to higher value sectors such as the medical and dental industries for growth and would continue to explore new opportunities as they became available.

Despite the effects of the recession in Europe, the group said its German subsidiary had again achieved good results.

Things were less successful in North America where the severe retraction of the economy had a major impact on the business.

Sales continue to grow in the newer markets of China and India and the group is expanding its network across both countries.