Delcam Plc - Williams de Bro acts as broker to Delcam Plc

Forecast Valid until 29/03/05

• While sales volumes, particularly in Delcam’s North American and Far Eastern territories have continued to grow (up an estimated 10%-15% in FY04), the weakness of the US Dollar has had a negative impact on translation, and with no recognisable US cost base, this impact flows straight to the bottom line. Delcam believes that if exchange rates had been constant in the period, it would have outperformed market expectations.
  
  
• At the half year point, Delcam looked to be on course to meet our full year expectations, despite an already weakened US$. However a recurring trend for Delcam is that a significant proportion of its licence sales occur in the final few weeks of the financial year (through December) as smaller to mid size engineering companies utilise period end budgets. It is therefore unfortunate that the further recent slump in the US$ has adversely impacted this important trading period for the group.
  
  
• Despite the set back, the business as a whole appears healthy. The balance sheet is strong (estimated year end net cash position of £0.6m – after a £1m cash pension fund contribution) and we expect the dividend to be maintained at FY03 levels. The group is also to benefit from a lower than expected tax charge (circa 10% against our 20% estimate) as it takes advantage of R&D tax credits.
  
  
• We take comfort that underlying sales growth in its key overseas markets continue unabated. That said, the continued weakness of the US$ will impact revenue growth next year relative to 2004, thus we have downgraded our FY05 expectations. This leaves Delcam on a prospective FY05 earnings multiple of 10.4x which remains a substantial discount to the sector as a whole.

Analyst
Matthew Davis - Tel: +44 (0)121 335 1279
email: matthew.davis@wdebroe.com

The above information is an extract from Williams de Bro Financial Report of Delcam plc. A full report can be obtained on request by emailing: marketing@delcam.com