25 Mar 2009 07:00
| FOR IMMEDIATE RELEASE | 25 March 2009 |
eg solutions plc
RESULTS FOR THE YEAR ENDED 31 JANUARY 2009
eg solutions plc ("eg solutions" or "the Company"; LSE-AIM: EGS), the operations management software company, announces its unaudited results for the year ended 31 January 2009.
Key points:
Revenue was £3.7m (2008: £4.1m).
Prior year results have been restated to reflect a change in R&D expenditure and amortisation.
Gross margins were 51% (2008: 65%; restated 2008: 70%), reflecting in part an increased use of sub-contractors.
The loss before tax was £0.75m (2008: £0.82m; restated 2008: £0.60m).
The loss per share was 5.5p (2008: 5.0p; restated 2008: 3.8p).
Net cash at the year-end was £0.26m (2008: £0.88m) and currently is at a higher level.
Investment in capitalised R&D was £0.53m (2008: £0.71m; restated 2008: £0.82m).
New contract wins in the year included Nationwide Building Society's Specialist Lending and Regional Brands, Co-operative Financial Services, Co-operative Travel Group and Resolution Health in South Africa.
On Outlook, Rodney Baker-Bates, non-executive Chairman stated:
"In the period end trading update issued in January 2009 we noted that our pipeline of potential sales was stronger than at any time in the past 24 months. That continues to be the case and our focus is on converting this potential into signed contracts. While trading conditions are difficult and customer decision times are longer, steady progress is being made in closing new sales contracts.
"Meanwhile, the Company's net cash deposits have increased since the year-end; together with a bank facility for the forthcoming financial year, this provides adequate financing for the foreseeable future."
CONTACTS
| eg solutions plc | Today: 020-7367-8888 |
| Elizabeth Gooch, Chief Executive Officer | Thereafter: 01785-715772 |
| www.eguk.co.uk | |
| Bankside | 020-7367-8888 |
| Steve Liebmann, Simon Bloomfield or Andy Harris | |
| Brewin Dolphin Ltd (Nominated Adviser) | 0845-213-4748 |
| Mark Brady, Director Corporate Finance |
About eg solutions plc
eg solutions plc is a global operations management software company. Our software provides historic, real-time and predictive Operational MI. When implemented with our training programme for managers and team leaders to use this intelligence, we guarantee improvements in operational results in short timescales.
CHAIRMAN'S STATEMENT
Introduction
After a good first half year in which the Company made progress in meeting its objectives, the second half year deteriorated progressively as the crisis deepened within the financial services sector - our principal market. Although our products are firmly within the 'spend to save' category, and there is increasing evidence of demand, our clients have subjected expenditure on new and existing IT projects to more intense scrutiny since October 2008. This has led to delays in placing orders and, in certain instances, cancellation of projects which were at a late stage of negotiation. As a result, performance in the last quarter of the year was significantly below forecast, affecting the results for the year as a whole which were below expectations.
Results and finance
Following the appointment of Ernst & Young LLP as the Company's new auditors in September 2008, the opportunity has been taken since the year end to review the detailed treatment of R&D capitalisation and amortisation policies under IFRS. This has led to a restatement of the results for the year to 31 January 2008, reducing the amount charged to the Income Statement for development expenditure and amortisation by an aggregate £231,000, thereby reducing the stated loss for that year.
After recording an increase in revenue during the first half year, a very quiet last quarter of the year resulted in total revenue for the year to 31 January 2009 of £3.7 million (2008: £4.1 million) and an operating loss of £792,000 (2008: previously stated: £897,000; restated: £683,000). The loss before tax was £753,000 (2008: previously stated: £815,000; restated: £601,000). The loss per share was 5.5p (2008: previously stated: 5.0p; restated: 3.8p).
Net cash at the year-end was £262,000 (2008: £878,000) and cash balances are currently at a higher level.
Dividend
The Board will not be declaring a dividend for the year ended 31 January 2009.
Board and senior management
During the second half of the year, Robert Maxfield joined the Company as Head of Sales with a brief to help convert a promising pipeline of potential business into firm orders. I am pleased to report that Robert is making good progress.
More recently we announced that Violetta Parylo had resigned as Finance Director and has now left the Company to take up a position in a larger organisation. Given the current size of eg solutions, it has become apparent to the Board that the role of Finance Director does not warrant a full-time executive position. Accordingly, the Company has decided that the position of Finance Director will become a part-time position supported by the current Financial Controller and accounts staff.
Andy McRae, currently a non-executive Director of the Company and a qualified UK Chartered Accountant, has assumed the position of part-time Finance Director until a suitable replacement with public company experience has been appointed.
Current trading and outlook
In the period end trading update issued in January 2009, we noted that our pipeline of potential sales was stronger than at any time in the past 24 months. That continues to be the case and our focus is on converting this potential into signed contracts. While trading conditions are difficult and customer decision times are longer, steady progress is being made in closing new sales contracts.
Meanwhile, the Company's net cash deposits have increased since the year-end; together with a bank facility for the forthcoming year, this provides adequate financing for the foreseeable future.
Rodney Baker-Bates
Non-executive Chairman
24 March 2009
CHIEF EXECUTIVE OFFICER'S STATEMENT
Introduction
Some two years ago we promised shareholders that a turnaround would be achieved in three half-year trading periods together with the creation of a platform for profitable growth. The Company was on track to deliver on this promise until the start of the last quarter of our financial year. Inevitably, we were affected by the rapid onset of the crisis in the financial services sector which is our main marketplace.
With an immediate focus by our customers on short-term reactions to the developing problems, decision times on new projects lengthened significantly in the closing months of the year under review. Some client companies sought to reduce capital expenditure on IT; others deferred projects on account of an unprecedented level of M&A activity in the sector. This resulted in some potential sales being deferred and others being cancelled. Also, some customer support contracts were lost when these customers ceased trading or were merged into other entities.
Within the past few months, the stronger financial services businesses have begun to recognise the need for investment in IT projects which will reduce their costs, improve service levels and achieve payback in short time periods.
Business review
Strict control of costs
A tight control of costs has been maintained during the year. The increase in the total cost of sales to £1.8 million (2008: £1.4 million: restated 2008 £1.2 million) reflects an increased use of IT sub-contractors during the year which, together with higher amortisation of development expenditure, resulted in a reduction in gross margins to 51% (2008: 65%: restated 2008: 70%). Administrative costs were reduced to £2.6 million (2008: £3.6 million) and are budgeted to reduce further this year.
The Company moved into new offices in July 2008, incurring a one-off cost of £55,000. These new open plan offices have improved staff morale and team working as well as providing excellent new customer training facilities.
Total one-off costs in the year were £112,000 (2008: £392,000) including the office move and a prior-year provision for 'ex-pat' tax equalisation.
A review of the treatment of capitalisation and amortisation of R&D expenditure under accounting standard IAS 38 has resulted in an adjustment to the accounts for the year ended 31 January 2008. Additional R&D capitalisation of £103,000 from direct costs and a £128,000 reduction in amortisation is reflected in a £231,000 increase in retained earnings on the balance sheet. These changes are non-cash items.
Market and business development
The Company's sales efforts have been increased by the appointment in November 2008 of Robert Maxfield as Head of Sales. With greater focus on Business Development, together with an increased number of enquiries, the pipeline of potential sales is now stronger than at any time in the past 24 months as companies in the financial services sector seek to reduce their cost base. It is evident that
the stronger companies in UK financial services have realised that improved operational management capability can help them to reduce costs, whilst also improving customer service and regulatory compliance.
The combination of software licences, software services and maintenance increased its contribution to 66% of revenue for the full year with the balance coming from implementation services. This compares with 56% for FY 2008 and only 36% in FY 2007.
Despite considerable re-structuring amongst the eg customer base and some pressure to reduce the costs of contracted support, maintenance revenues have held up well and are expected to do so in the current year.
New contract wins announced during the year under review included Nationwide Building Society's Specialist Lending and Regional Brands, a software services project for Co-operative Financial Services, as well as implementations in Co-operative Travel Group and Resolution Health in South Africa. These contract wins demonstrate continued interest in our products in core markets and internationally.
During the year, work was undertaken on 25 software services projects for 11 clients including Aviva, Co-operative Financial Services, Capita, Liberty Life, Nationwide and Wesleyan Assurance. These projects largely involved integrating eg work manager® and eg operational intelligence® with enterprise workflow and content management systems, process modelling and simulation tools and corporate performance measurement tools.
Currently, 10 customers are now using the latest releases of eg work manager® and eg operational intelligence® - the fastest take up of a new product release in the Company's history.
Product development & support
Investment in capitalised software development in the year was £528,000 (2008: £0.71m; restated 2008: £0.82 million) and included a major project to improve the efficiency and quality of software developments to enable eg to undertake more development projects at lower cost.
Development to existing software products included:
enhancement to eg activity manager™ using Microsoft Silverlight technology;
increased archiving capability;
implementation of fully automated work allocation to support large scale work throughput volumes; and
improved reporting for clients to provide B2B service level reports direct from eg work manager®.
Development of new software products included:
development of eg work manager® (v5.1) and eg operational intelligence® (v2.1) for release in 2009, including conversion of report production to Microsoft SQL Server Reporting Services; and
eg operational data views™ - a new product enabling clients to use eg work manager® data in other systems, develop customised reports and embed eg work manager® data in enterprise IT platforms.
During the year and since the year end, good progress has been made in certification and accreditation including:
Microsoft certification for eg work manager® v5.0 and eg operational intelligence® v2.0;
BBBEE (Broad Based Black Economic Empowerment) level 2 accreditation in South Africa (score out of 10 with 1 being the highest. 2 is a high score for small/new enterprises, particularly a foreign entity); and
Banking Sector Training and Education Authority (BANKSETA) accreditation in South Africa for eg Operational Management training.
Priorities for the future
Our plans to restore the Company to profitable growth were on track in the first half of the year but were interrupted by the challenging conditions in the financial services sector in the last 6 months.
However, there is now increasing interest in our applications and services as they help our customers to reduce costs and deliver guaranteed return on investment in six months.
Our strategy remains to continue our plans to achieve profitable growth for our shareholders by securing further new business in UK core markets and specific international markets, strict control of overheads and the pursuit of further opportunities to reduce costs.
Elizabeth Gooch
Chief Executive Officer
24 March 2009
UNAUDITED GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 JANUARY 2009
| Notes | Year | Year | Year | |
| ended 31 January 2009 | ended 31 January 2008 Restated | ended 31 January 2008 | ||
| £'000 | £'000 | £'000 | ||
| Revenue | 3 | 3,666 | 4,123 | 4,123 |
| Cost of sales | 2 | (1,812) | (1,217) | (1,431) |
| Gross profit | 2 | 1,854 | 2,906 | 2,692 |
| Administrative expenses | (2,646) | (3,589) | (3,589) | |
| Loss from operations | 4 | (792) | (683) | (897) |
| Finance income | 39 | 82 | 82 | |
| Loss before tax | (753) | (601) | (815) | |
| Tax credit | 33 | 99 | 159 | |
| Loss after tax | (720) | (502) | (656) | |
| Loss per share | 5 | |||
| From continuing operations Basic | (5.5p) | (3.8p) | (5.0) | |
| Diluted | (5.5p) | (3.8p) | (5.0) |
UNAUDITED GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 JANUARY 2009
| Note | 2009 | 2008 | 2008 | |
| £'000 | £'000 | £'000 | ||
| Restated | ||||
| Currency translation differences | (28) | 10 | 10 | |
| Income and expenses for the year directly recognised in equity | (28) | 10 | 10 | |
| Loss for the year | (720) | (502) | (656) | |
| Prior year adjustment | 2 | - | 12 | - |
| Total recognised income for the year | (720) | (490) | (656) | |
| Attributable to: | ||||
| Equity holders of the parent | (748) | (480) | (646) | |
| (748) | (480) | (646) |
UNAUDITED GROUP BALANCE SHEET
AS AT 31 JANUARY 2009
| Note | At 31 January 2009 | At 31 January 2008 Restated | At 31 January 2008 | |
| £'000 | £'000 | £'000 | ||
| ASSETS Non-current assets | ||||
| Intangible asset | 1,434 | 1,142 | 911 | |
| Property, plant and equipment | 74 | 117 | 117 | |
| 1,508 | 1,259 | 1,028 | ||
| Current assets | ||||
| Trade and other receivables | 539 | 825 | 825 | |
| Inventories | 17 | 24 | 24 | |
| Current tax receivable | 258 | 157 | 157 | |
| Cash and short term deposits | 262 | 878 | 878 | |
| 1,076 | 1,884 | 1,884 | ||
| Total assets | 2,584 | 3,143 | 2,912 | |
| LIABILITIES | ||||
| Current liabilities | ||||
| Trade and other payables | 1,063 | 969 | 969 | |
| 1,063 | 969 | 969 | ||
| Non-current liabilities | ||||
| Deferred tax liabilities | 215 | 147 | 82 | |
| 215 | 147 | 82 | ||
| Total liabilities | 1,278 | 1,116 | 1,051 | |
| Net assets | 1,306 | 2,027 | 1,861 |
| EQUITY | ||||
| Share capital | 143 | 143 | 143 | |
| Share premium | 2,910 | 2,910 | 2910 | |
| Share based payment reserve | 218 | 191 | 191 | |
| Own shares held | (1,000) | (1,000) | (1,000) | |
| Retained earnings | 2 | (965) | (217) | (383) |
| Total equity | 1,306 | 2,027 | 1,861 |
UNAUDITED GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 JANUARY 2009
| Note | Year | Year | |
| ended | Ended | ||
| 31 January 2009 | 31 January 2008 Restated | ||
| £'000 | £'000 | ||
| Operating Activities | |||
| Cash generated from operations | 6 | (77) | (837) |
| Income taxes received | - | 91 | |
| Net Cash Used In Operating Activities | (77) | (746) | |
| Investing Activities | |||
| Purchases of intangible assets | (528) | (819) | |
| Purchases of property, plant and equipment | (54) | (70) | |
| Proceeds from sale of fixed assets | 4 | - | |
| Interest received | 39 | 82 | |
| Net Cash Used In Investing Activities | (539) | (807) | |
| Net Decrease In Cash And Cash Equivalents | (616) | (1,553) | |
| Cash And Cash Equivalents At Beginning Of Year | 878 | 2,431 | |
| Cash And Cash Equivalents At End Of Year Bank balances and cash | 262 | 878 |
Notes
1. Basis of Preparation
The accounts for the year ended 31 January 2009 are in the final stages of completion. The auditors anticipate issuing an unmodified opinion.
The information in this final results announcement has been prepared on the basis of the accounting policies set out in the Group accounts for the year ended 31 January 2008 and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Full accounts of eg solutions plc for the year ended 31 January 2008, which were prepared in accordance with International Financial Reporting Standards (IFRS) have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under Section 237(2) of the Companies Act 1985.
The final results announcement for the year ended 31 January 2009 was approved by the Board of Directors on 24 March 2009.
2. Prior Year Adjustment
During 2008, following a review of its Research and Development policy eg solutions plc discovered that some software subcontractor costs relating to the year ending 31 January 2007 had not been capitalised.
The total cost of this under capitalisation amounted to £103,000.
During this review eg also discovered that three of its products had been amortised too early. The three products in question were not available for general release until late January 2008. The total of this error amounted to £128,000.
These adjustments resulted in a deferred tax liability of £65,000 of which £60,000 related to the prior year and £5,000 related to earlier periods.
The above adjustments have been adjusted through reserves.
In 2008 eg solutions plc reported:
| 2008 | |
| £'000 | |
| Revenue | 4,123 |
| Cost of sales | (660) |
| Research and development expenditure | (647) |
| Amortisation of development expenditure | (124) |
| Total cost of sales | (1,431) |
| Gross profit | 2,692 |
| Administrative expenses | 3,589 |
| Loss from operations | (897) |
| Investment income | 82 |
| Loss before tax | (815) |
| 2008 opening retained earnings were £263,000 and closing retained earnings were (£383,000). | |
The financial statements have been restated to reflect the changes that have been made.
3. Revenue
| An analysis of the Group's revenue is as follows: | ||
| Year ended 31 January 2009 £'000 | Year ended 31 January 2008 £'000 | |
| Continuing operations: | Restated | |
| United Kingdom | 3,465 | 3,775 |
| South Africa | 201 | 348 |
| 3,666 | 4,123 | |
4. Group Operating Loss
This is stated after charging:
| Year ended 31 January 2009
£'000 | Year ended 31 January 2008 Restated £'000 | |
| Net foreign exchange losses | 9 | 5 |
| Research costs | 4 | - |
| Amortisation of development expenditure | 236 | 13 |
| Depreciation | ||
| - owned assets | 63 | 85 |
| Staff costs | 2,587 | 3,122 |
| Operating leases | 161 | 123 |
5. Loss Per Ordinary Share
From continuing operations
| Year ended 31 January 2009 | Year ended 31 January 2008 Restated | |
| Basic | (5.5p) | (3.8p) |
| Diluted | (5.5p) | (3.8p) |
EPS has been calculated using the following methodology:
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the number of weighted average ordinary shares during the period. The number of shares excludes shares held by an Employee Benefit Trust.
For diluted earnings per share, the number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees.
As the Basic EPS is a negative value, the effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.
6. Reconciliation Of Group Loss Before Tax To Net Cash Generated By Operations
| 2009 £'000 | 2008 £'000 Restated | |
| Loss from operations | (792) | (683) |
| Adjustments for: | ||
| Depreciation of property, plant & equipment | 62 | 85 |
| Loss on disposal of fixed assets | 31 | - |
| Amortisation of intangible assets | 236 | 13 |
| Share option charge | 27 | 68 |
| Operating cash flows before movements in working capital | (436) | (517) |
| Decrease/(increase) in receivables | 258 | (295) |
| Decrease/(increase) in stock | 7 | (24) |
| Increase/(decrease) in payables | 94 | (1) |
| Cash generated by operations | (77) | (837) |