eg Solutions PLC Regulatory News (EGS)

26 Mar 2008 07:01

EG Solutions plc26 March 2008 Issued by Golley SlaterDate: Wednesday 26 March 2008 Embargoed: 7.00am eg solutions plc Preliminary Results for the full year ended 31 January 2008 Financial Highlights • Revenue £4.1million (2007: £5.4 million) • Pre-Tax Loss excluding one-off costs (£425,000) (2007: £41,000). One-off costs incurred of £392,000 in the establishment of overseas operations and the re-organisation of the UK operation. • Loss per share 5.0 pence per share (2007: 0.0 pence per share) • Cash balance £0.88 million (2007: cash £2.43 million) • Gross margin 65.3% (2007: 72.9%), better than the software sector average of 55% Business Highlights • Cost base reduced by £900,000 on an annualised basis • Further development into new international markets - revenues three times the original target for first year of international trading • £1.24 million invested in research and development (2007: £810,000) Of which £716,000 was capitalised (2007: £283,000) • New versions of eg operational intelligence(R) software suite launched - now used by over 5,000 users, across 7 companies - total worldwide users of over 40,000 • Major contract win with UK Life & Pensions company plus three further contract wins secured within the first trading month of the 2008 financial year. Clear evidence of continued interest from financial services and other sectors within the UK "Although 2007 was a tough year, eg continues to be a vibrant and dynamicorganisation that is firmly focused on implementing key objectives to return thebusiness to its previous levels of revenue growth and profitability." "We fully recognise the importance of nurturing appropriate new businessopportunities both within the UK and overseas and will continue to develop thisstrategy for the foreseeable future." Rodney Baker-Bates, Non-Executive Chairman FULL STATEMENT ATTACHED Enquiries:Elizabeth Gooch Richard Evans Katie DaleChief Executive Officer Director Corporate Finance Head of Financial PReg solutions plc Brewin Dolphin Ltd (Nominated Adviser) Golley SlaterTel: 01785 715772 Tel: 0161 214 5553 Tel: 0121 384 9743www.eguk.co.uk Mobile: 07918 716 754 Notes to Editors eg is the leading provider of Operations Management solutions that provide rapidperformance improvements in Customer Service Delivery. Operations Management improvements are achieved through the deployment of eg'stwo core products/services: • the eg operational intelligence(R) software suite and• eg operational management(R) training and development for Managers and Team Leaders based on tried, tested and proven methodologies taken from industry eg's software package eg operational intelligence(R) (including eg work manager(R)) has been developed and refined over the last 15 years and providescomprehensive, real-time work, resource and performance management information.It enables clients to gather information about the key factors affectingperformance, and, using eg's operational management techniques, identifyappropriate decisions and implement actions that improve efficiency, CustomerService and reduce cost. The two solutions enable eg's clients to double their productivity anddramatically improve customer service performance almost immediately and eg willguarantee the results that can be achieved. It also forms a foundation forcontinuous improvements in subsequent years. STATEMENT BY THE NON-EXECUTIVE CHAIRMAN, RODNEY BAKER-BATES Introduction As previously stated in our last Annual Report, during 2007 we intended toconcentrate on reducing costs and strengthening the fundamentals of our businessin order to return to profitable growth. We did not expect to achieve thisovernight and, whilst our financial performance has been disappointing, our coreobjectives have remained on track. There are clear signs of recovery across theGroup. We have also given particular attention to business development within newmarkets and have made further investment in our core products in order to meetour customers' requirements of improving operational effectiveness in a globalmarketplace. The work we have done will enable us to secure more stable and sustainablegrowth in the future. With the launch of new and improved versions of oursoftware we have also enjoyed some success in securing a number of new contractsduring the period. It is pleasing to note that this new business also reflectsour progress in developing international markets. Financial Review Financial performance for the full year ending 31 January 2008 was belowexpectations, but improvements in profitability across the Group during thesecond half of the year are clearly visible. The financial year was one of operational transition and margin recovery. Wehave undertaken initiatives to reduce costs, whilst ensuring that overheadsremain under strict control. As a result costs are now below pre-flotationlevels. Although these measures resulted in the Company returning to profit in theclosing months of the financial year, revenues from the majority of sales closedin the same period were not recognisable until after the financial year end.Therefore, these sales will contribute towards revenues in the current financialyear ending 31 January 2009. Revenue in the period was maintained at the same level as the previous two halfyear periods at £4.1 million for the year (down by £1.3 million on the previousyear). The Loss before Tax was (£815,000) including one-off investment costsof £392,000 (2007: £41,000). The retained loss for the financial year was(£656,000) (2007: Profit £6,000). Loss per share was 5.0 pence per share (2007: 0.0 pence per share). Cash balance was £0.88 million (2007: cash £2.43 million). Gross margin was 65.3%, which is in line with our target and better than theaverage for the software sector. Dividend The Board will not be declaring a dividend at the full year stage. People During the financial year we were very pleased to announce the appointment ofPaul Bird as Finance Director and Company Secretary with effect from 3 September2007. It is therefore very unfortunate that I have to report Paul Bird'sdecision to resign from the Board of eg in order to allow him to assume anotherposition elsewhere. Although Paul will remain with the Company until the end of his contractednotice period in order to execute an efficient 'hand-over' to his successor, theBoard is fully aware that another personnel change at such a senior level withinthe Company is far from ideal. The Directors are particularly keen therefore, toreassure shareholders that the process to appoint a suitable replacement isunderway and a further announcement will be made as soon as possible. In November 2007 we also announced the resignation of Jonathan Pyke asNon-Executive Director. Jonathan, who had been with eg since our flotation onAIM in 2005, resigned to pursue a full-time position with another company. Hewas a valued member of the Board and we extend our very best wishes to him forthe future. We fully acknowledge the important role that Non-Executive Directors have toplay in the future growth and development of eg and therefore, we are activelyseeking a suitable candidate that will add value to the Company going forward.Shareholders will be updated on any appointment in due course. Across the Company our offices are well managed and driven by a long servingteam of people at operational level, all of whom remain fully committed to theoverall success of eg. On behalf of the Board and Shareholders, I would like totake this opportunity to thank all of our staff who have continued to work hardduring what has been an arduous year for the Company. Overview Although 2007 was a tough year, eg continues to be a vibrant and dynamicorganisation that is firmly focused on implementing key objectives to return thebusiness to its previous levels of revenue growth and profitability. As we have indicated in previous announcements to Shareholders, the fullrecovery of the business requires 18 to 24 months to complete, and we arereasonably satisfied with progress made to date. As a Company, we fully recognise the importance of nurturing appropriate newbusiness opportunities both within the UK and overseas and will continue todevelop this strategy for the foreseeable future. Finally, and on an extremely positive note, the Company celebrated its 20thBirthday just before the financial year end in January 2008. This was asignificant milestone that clearly reflects the longevity of the business andthe high levels of customer satisfaction with which we have become synonymous. STATEMENT BY THE CHIEF EXECUTIVE OFFICER, ELIZABETH GOOCH Business Review The Company has made a number of significant developments during the periodunder review. Our objectives were to reduce costs, to expand into newinternational markets and to build our repeatable revenues. At the same time, weneeded to continue to enhance our software to meet customer requirements acrossthe globe. We are pleased to update Shareholders on the following: • Cost Reduction Our primary focus during the year was to reduce our cost base. The main area ofspend in eg is people and the required reduction in headcount needed to beachieved with sensitivity. The cost reduction work was completed in the firsthalf of the year with the actual cost reductions beginning to take effect fromJune 2007 onwards. In total, cost reductions of £900,000 on an annualised basishave been achieved, bringing our UK cost base below pre-flotation levels.Although the outturn for the full year was still an operating loss, the loss inthe second half of the year was £215,000 compared to £682,000 in the first half.In total an operating loss of £897,000 was generated including £392,000 inone-off costs associated with the redundancies, setting up in new markets andthe additional cost of an interim finance director required in the first half ofthe year. Gross Margin for the year was 65.3% and, although this is below the levelachieved in the previous financial year (72.9%), it is in line with our targetand well ahead of the sector average. • Expansion into New Markets At the same time as reducing our costs, we have continued to focus on developingnew international markets in order to reduce revenue concentration on UKfinancial services. In 2007 we secured clients in three of our five targetinternational markets. Sales revenues of 3 times the original expectations foreg's first year of international business, have been achieved. We are pleased with the success of our implementation projects within SouthAfrica, India and the Netherlands which clearly demonstrate the applicability ofour solutions in the global marketplace. Our international business has alsogiven us the opportunity to demonstrate the successful application of a Softwareas a Service ("SaaS") licence model based on the hosted solution launchedearlier in the year. The continued expansion into these overseas markets will remain a key strategyfor the foreseeable future in order to mitigate the risks of over concentrationon UK markets. • UK Business Development In December 2007 we were delighted to secure a significant piece of new businesswith a major UK Life & Pensions company within our core UK market. We are providing this client with the new and improved version of eg operationalintelligence(R) software, which was launched in April 2007, together with the egprinciples of operational management(R). This contract win was an importantdevelopment as it demonstrates our continued focus and commitment to our veryimportant home market, whilst we also concentrate on international expansion. eg continues to enjoy high levels of repeat business from existing clients and,as a result of this and other work undertaken throughout the 2007 financialyear, we have begun to reduce our exposure to lumpiness' in our revenues. We have also significantly reduced any dependency on single clients/projects andworked hard to secure more long-term contractual income, with a particular shifttowards securing 3 to 5 year licensing agreements. Together with a highproportion of repeat revenues, these actions reduce our exposure to moreunpredictable new business wins. • Product Development We have invested a further £1.24 million in research and development during thecourse of the financial year. The financial year marked a significant milestone in our product offering toclients when, in April 2007, we launched new and improved versions of our egoperational intelligence(R) software suite, incorporating eg work manager(R). The benefits of these new versions are extensive and include improvedfunctionality covering end-to-end process and milestone measurement, customerexperience management (encompassing new service and quality metrics), as well asmanagement across multiple time zones and an overall improved "look and feel"for both users and managers. As a result eg now has the only operationalintelligence tool that provides historic, real-time and predictive managementinformation at multiple levels, both within and between businesses, whilst atthe same time enabling reporting by customer, channel and process. Our Research and Development team in South Africa has completed the developmentof eg activity managerTM, a new module of our software that enables our clientsto track actual processing time in comparison with target processing time on anongoing basis. Given the increased pressure for businesses to deliver improved customer serviceat the lowest possible cost, eg's leading edge operational intelligence togetherwith training and implementation services that enable companies to achieveguaranteed and sustainable improvements, resonate well with these requirements. During the year, the new and improved versions of our software have been adoptedby over 5,000 users, across 7 companies, bringing our total worldwide users toover 40,000. Current Trading Our Clients, across many different markets both in the UK and abroad, continueto confirm that our software, implementation and training services generate thedramatic improvements that we promise. The three new contract wins that wesecured within the first trading month of the 2008 financial year are clearevidence of the continued interest in our solutions from a number of sectorswithin the UK. Firstly, Nationwide Building Society have commissioned a further implementationin their Specialist Lending Division in Bournemouth. This follows the recentupgrade to the new versions of the eg operational intelligence(R) software suitethat took place between November 2007 and January 2008. In this new projectNationwide will use eg's software to migrate UCB Homeloans into the Bournemouthoperations centre. At Co-operative Financial Services eg has secured a major software servicesproject to embed the eg operational intelligence(R) software suite into anintegrated solution that will automate the processing of inbound and outboundcorrespondence. The full solution will be developed in partnership with threeother companies; Xerox, Communisis and Exstream. eg will provide the operationsmanagement components of the solution including work and process management, andthe automatic production of historic, real-time and predictive MI. Finally, a further new implementation will take place in the Travel and TourOperator Payments teams of the Co-operative Travel Group. eg's software wasalready installed in the Financial Shared Services teams of The Co-operativeGroup before the retailer merged with United Co-operative last year. This newimplementation will take place in the Travel and Tour Operator Payments divisionof the merged group. The new version of the eg operational intelligence(R)software suite will be implemented, demonstrating another application of theenhanced functionality of the software outside financial services. These new contract wins clearly demonstrate that the Company is becomingincreasingly better placed to take advantage of the opportunities provided bydifferent sectors and the requirements of global operational management ingeneral. Future Outlook Although we have achieved many of our turnaround objectives, we still have workto do on our strategy to further improve sustainability. At the same time themarket environment has become extremely unpredictable. We therefore remaincautious in our outlook for 2008. However, we are pleased that our order book for the forthcoming year is already£3m, 50% higher than at the same point in the 2007 financial year. The salespipeline is healthy and, on this basis, we will continue to demonstratecontinued recovery during 2008. Shareholders should be aware that during the recession of 2001 to 2003 egoutperformed the rest of the software industry by consistently growing in bothrevenue and profit during this difficult period. This positive historical performance demonstrates the continued demand for ourproducts during downturns in the IT market in general and our reducedvulnerability to falls in IT spending amongst our clients. The Chairman, Chief Executive and senior management team were all in placeduring the last market downturn and, together with the cost reductions we havemade, we believe that we are well placed to repeat our 2001 to 2003 performancein terms of growth and value for Shareholders. CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 JANUARY 2008 Year ended Year ended 31/01/08 31/01/07 £'000 £'000 Revenue 4123 5472 Cost of sales (660) (904)Development expenditure (647) (545)Amortisation of development expenditure (124) (35)Total cost of sales (1431) (1484) Gross profit 2692 3988 Administrative expenses (3589) (4142)Loss from operations (897) (154)Investment income 82 113Finance costs Loss before tax (815) (41) Income tax expense 159 47 Loss after tax (656) 6Earnings / (loss) per share - -From continuing operationsBasic (5.0p) 0.0pDiluted (5.0p) 0.0p CONSOLIDATED BALANCE SHEETAS AT 31 JANUARY 2008 At 31 January 2008 At 31 January 2007 £'000 £'000ASSETS Non-current assets Other intangible assets 911 319Property, plant and equipment 117 132 1028 451Current assetsTrade and other receivables 849 520Current tax receivable 157 99Cash and cash equivalents 878 2431 1884 3050 Total assets 2912 3501 LIABILITIES Current liabilities Trade and other payables 969 970Other current financial liabilities 969 970 Non-current liabilitiesDeferred tax liabilities 82 92 82 92Total liabilities 1051 1062 Net assets 1861 2439 2008 2007 £'000 £'000EQUITY Share capital 143 143Share premium 2910 2910Other reserves 191 123Own shares held (1000) (1000)Retained earnings (383) 263Total equity 1861 2439 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 JANUARY 2008 2008 2007 £'000 £'000 Currency translation differences 10 -Net income for the year directly recognised in equity Profit for the year (666) 9Total recognised income for the year (656) 9 Attributable to: Equity holders of the parent (656) 9 (656) 9 CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 JANUARY 2008 Year ended Year ended 31/01/08 31/01/07 £'000 £'000OPERATING ACTIVITIESCash generated from operations (940) 1094Income taxes paid 91 (225)NET CASH FROM/(USED IN) OPERATING ACTIVITIES (849) 869 INVESTING ACTIVITIESPurchases of other intangible assets (716) (283)Purchases of property, plant and equipment (70) (80)Interest received 82 113NET CASH USED IN INVESTING ACTIVITIES (704) (250) FINANCING ACTIVITIESDividends paid - (223)NET CASH (USED IN)/FROM FINANCING ACTIVITIES - (223) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (1553) 396 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2431 2035 CASH AND CASH EQUIVALENTS AT END OF YEARBank balances and cash 878 2431 Notes 1. Explanation of transition to IFRS This is the first year that the Group has presented its financial statementsunder IFRS. The following disclosures are required in the year of transition.The last financial statements under UK GAAP were for the year ended 31 January2007 and the date of transition to IFRS was therefore 1 February 2007. 2. Earnings / (Loss) per share Prior year calculations have been adjusted following the transition to IFRS fromGAAP. From continuing operations: Year ended Year ended 31/01/08 31/01/07 £ £ Basic (5.0p) 0.0pDiluted (5.0p) 0.0p EPS has been calculated using the following methodology: Profit/(Loss) after Tax Allotted issued and fully paid share less shares owned by the Employee BenefitTrust. Diluted EPS has been calculated using the following methodology: Profit / (Loss) after Tax Allotted issued and fully paid shares less shares owned by the Employee BenefitTrust that are not currently allocated as options As the Basic EPS is a negative value, the effects of anti-dilutive potentialordinary shares are ignored in calculating diluted EPS. Reconciliation of profit / (Loss) before tax to net cash generated by operations 2008 2007 £'000 £'000 Profit before tax (897) (154)Adjustments for:Depreciation of property, plant & equipment 85 89Amortisation of intangible assets 124 35Share option charge 68 51Foreign exchange (gains)/losses 10 - Operating cash flows before movements in working capital (610) 21Decrease/(increase) in WIP (27) -Decrease/(increase) in receivables (302) 990Increase/(decrease) in payables (1) 83Cash generated by operations (940) 1094 3. The Annual General Meeting of the Company will be held at the offices of TLTSolicitors of Sea Containers House 20, Upper Ground Blackfriars Bridge LondonSE1 9LH on Tuesday 17 June 2008 at 10.30 am 4. This preliminary statement, which has been agreed with the auditors, wasapproved by the Board on 18 March 2008. The financial information set out inthis announcement does not constitute the Company's statutory accounts for theyear ended 31 January 2008. The statutory accounts for the year ended 31 January 2008, which will include anunqualified audit opinion, will be delivered to the Registrar of Companiesfollowing the Company's Annual General Meeting on 17 June 2008. This information is provided by RNS The company news service from the London Stock Exchange