eg Solutions PLC Regulatory News (EGS)

26 Sep 2007 07:02

EG Solutions plc26 September 2007 Date: Wednesday 26 September 2007 Embargoed: 7.00am eg solutions plc Interim Results for the six months ended 31 July 2007 Financial Highlights • Revenue £2.07m (2006 : £3.43m) • Loss before Interest and Tax (£0.68m) (2006 : profit £0.72m) • Adjusted basic loss per share (3.3p) (2006 : earnings per share 4.1p)* • Cash used £1.10m (2006 : cash generated £1.30m) * 2006 figure adjusted to IFRS Business Highlights • Operating costs reduced to £2.5m (2006 : £2.7m) after non-recurring items of £0.25m • Revenues marginally ahead of expectations and maintained at the same level as H2 2006 • Continued expansion in International markets with sales in three of five target territories; South Africa, the Netherlands and India • Further £0.12m invested in South Africa and second contract secured with Standard Bank • Further £0.3m invested in R&D, development of further new software module; eg activity manager, and launched new versions of eg work manager(R) and eg operational intelligence(R) • Software Maintenance Revenues increased by 22%, whilst Software Development revenues increased 30% in the half year compared to full year 2006. Long term software licence commitments secured based on hosted solution • Appointment of Paul Bird as Finance Director & Company Secretary Rodney Baker-Bates, Chairman, eg solutions plc said: "These results reflect our expectations of our performance in this period. Sixmonths ago we began implementing plans to strengthen our fundamentals as asuccessful software company, to return to profitable growth and re-establishShareholder confidence. We did not expect to achieve these objectivesovernight. However, there are clear signs of recovery across the company and asa result of these activities, the Company is currently trading in-line with theBoard's expectations for the full year". FULL STATEMENT ATTACHED Enquiries:Elizabeth Gooch, Chief Executive Officer Katie Dale, Head of Financial PReg solutions plc Golley SlaterTel: 01785 715772 Tel: 0121 384 9743www.eguk.co.uk Mobile: 07918 716 754 -2- 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. -3- Chairman's Statement Introduction I am pleased to report that the first half of the current financial year hasseen some recovery across the Company, following the disappointing performanceof the previous financial year. Despite trading in an increasingly competitive environment the Company has, aspreviously indicated in our statement to shareholders on 6 June 2007,implemented significant refinements to our strategy and continued to work hardto reduce our cost base. These results reflect our expectations of our performance in this period. Sixmonths ago we began implementing plans to strengthen our fundamentals as asuccessful software company, to return to profitable growth and re-establishShareholder confidence. We did not expect to achieve these objectivesovernight. However, there are clear signs of recovery across the company and asa result of these activities, the Company is currently trading in-line with theBoard's expectations for the full year. Financials As previously reported in our AGM Statement & Trading Update announced in June2007, the current financial year is one of operational transition and marginrecovery. We have been implementing a plan of action to improve our performanceand re-build the confidence of our Shareholders and will continue to remainfirmly focussed on these objectives for the remainder of the financial year.Our plans require several months to deliver visible results in terms of ourfinancial performance and, although we are where we expected to be at thispoint, this is reflected in our Interim Financial results. Turnover in the six months ended 31 July 2007 was £2.07m (2006 : £3.43m). Loss before interest and tax was (£0.68m) (2006 : £0.72m profit) including£0.25m in one off costs. Earnings per share to (3.3) pence per share (2006 : 4.1 pence per share).* Cash used £1.10m (2006 : cash generated £1.30m). * 2006 figure adjusted to IFRS Dividend The Board will not be declaring a dividend at the half year stage. Operating Review Despite the challenging trading conditions that we continue to experience theCompany has made a number of encouraging developments during the period: • Our cost base has been reduced and is continually reviewed. Run-rate costs have been reduced by £0.90m on an annualised basis. Our cost base in the first half of the year includes £0.25m of one-off costs. After taking these into account we have reduced costs below H1 2006 levels. We will now benefit from this reduced cost base in the second half of the financial year and will continue to review our costs moving forward. -4- • Whilst our sales are reduced compared with the same period last year, they are marginally ahead of market expectations and we have maintained revenues at the same level as H2 2006. This repeats a pattern that has historically proven to be a sustainable feature of our performance. H1 revenues have previously been similar to H2 of the previous year. • Our International market strategy continues to develop. We now have implementation projects in three of our five target territories; South Africa, the Netherlands and India. We have invested a further £0.12m in our South African operation and are pleased to report that a second sale with Standard Bank has been closed since our financial half year end. Our subsidiary office in South Africa has a healthy pipeline of sales prospects and will move into profit in 2008. • The Research & Development team we established in South Africa has completed the development of eg activity manager; a new module of our eg work manager(R) software that enables our clients to track actual processing time in comparison with target processing times on an ongoing basis. In total we have invested a further £0.30m in Research & Development and launched new versions of eg work manager(R) and eg operational intelligence(R). These new versions are now in use by our clients. • We have introduced strategies to reduce the lumpiness in our revenues and also create long term secured contractual income. These include increasing Software Services revenues from existing clients, revised licensing models based on our hosted solution, Software as a Service (SaaS) pricing and 3-5 year licences. • As a result of these strategies, Software Maintenance revenues have increased by 22% in the period and Software Development revenues in H1 are 30% higher than the full financial year ended 31 January 2007. We have also secured contractual commitments of £0.34m in 3 year hosted and annual licensing contracts. Although these are small initial commitments they are pilot implementations that will grow during H2 and more significantly in 2008. These strategies allow us to build long term contractual commitments from our clients, which in turn, will increase secured revenues for future periods. People During the period we were pleased to appoint Paul Bird as Finance Director &Company Secretary. Paul brings financial and commercial expertise in business process outsourcingand the software industry in regulated areas, particularly the public sector andutilities. Paul will strengthen the operational management of the company aswell as the Board. On behalf of the Board and Shareholders, I would like to take this opportunityto thank all of our people for their continued hard work and commitment to theCompany during the period. Current Trading and Outlook Contracted sales to date are £3.4m which is in-line with our expectations toachieve the Board's targets for the year. -5- Consolidated Interim Income Statementfor the six months ended 31 July 2007 Unaudited 6 Unaudited 6 Audited 12 months ended months ended months ended 31 July 2007 31 July 2006 31 January 2007 £000's £000's £000'sRevenue 2,067 3,430 5,472Cost of sales (722) (930) (1,481) Gross profit 1,345 2,500 3,991Administrative expenses (2027) (1,782) (4,164)Operating (loss) / profit (682) 718 (173)Finance income 48 44 113Finance costs (4) - -(Loss) / profit before income tax (638) 762 (60)Income tax credit / (expense) 212 (221) 47(Loss) / profit for the period (426) 541 (13) (Loss) / profit attributable to ordinary shareholders (426) 541 (13) Earnings per share - basic (3.3p) 4.1p (0.1p) - fully diluted (3.2p) 4.0p (0.1p) -6- Consolidated Interim Balance Sheet asat 31 July 2007 Unaudited as at Unaudited as Audited as 31 July 2007 at 31 July at 31 January 2006 2007 £000's £000's £000'sNon current assetsProperty, plant and equipment 147 147 132Intangible assets 559 156 297Deferred tax assets 291 - -Total non current assets 997 303 429 Current assets Trade and other receivables 1,261 1,459 619Cash and cash equivalents 1,309 3,378 2,431Total current assets 2,570 4,837 3,050Total assets 3,567 5,140 3,479 EquityIssued capital 143 143 143Share premium 2,910 2,910 2,910Other reserves 154 120 123Own shares held (1,000) (1,000) (1,000)Retained earnings (192) 874 241Shareholders' funds 2,015 3,047 2,417 Non current liabilitiesDeferred tax 163 53 92Total non current liabilities 163 53 92Current liabilitiesTrade and other payables 717 930 689Deferred revenue 672 678 281Current tax payable - 432 -Total current liabilities 1,389 2,040 970Total liabilities 1,552 2,093 1,062Total liabilities and equity 3,567 5,140 3,479 -7- Consolidated interim cash flow statementfor the six months ended 31 July 2007 Unaudited 6 Unaudited 6 Audited 12 months ended 31 months ended months ended July 2007 31 July 2006 31 January 2007 £000's £000's £000'sOperating activities(Loss) / profit before tax (638) 762 (60)Adjustments - - -Depreciation of property, plant and 45 43 89equipmentAmortisation of intangible assets 44 11 32Share option charge 31 48 51Exchange rate difference (7) - -Working capital adjustments - - -(Increase) / decrease in trade and (741) 143 990other receivablesIncrease / (decrease) in trade and 511 629 83other payablesNet cash (used in) / generated from (755) 1,636 1,185operations Investing activitiesPurchase of property, plant and (60) (99) (80)equipmentPurchase of intangible assets (307) (49) (261)Corporation tax - - (225) Net cash (used in) / generated from (367) (148) (566)investing activities FinancingDividend - (145) (223)Net cash generated from / (used in) - (145) (223)financing activities Net (decrease) / increase in cash and (1,122) 1,343 396cash equivalentsCash and cash equivalents at 2,431 2,035 2,035beginning of the periodCash and cash equivalents at end of 1,309 3,378 2,431the period -8- ACCOUNTING POLICIES The accounting policies set out below and used in the preparation of the interimFinancial Statements, represent the principal policies expected to apply to thepreparation of the Financial Statements for the year ending 31 January 2008. Basis of preparation Prior to 2007 the Group prepared its audited Financial Statements under UKGenerally Accepted Accounting Principles (UK GAAP). For the year ending 31January 2008, the Group is required to prepare its annual consolidated FinancialStatements in accordance with accounting standards adopted for use in theEuropean Union (International Financial Reporting Standards (IFRS)). These interim Financial Statements have been prepared in accordance with theaccounting policies set out below, taking into account the requirements andoptions in IFRS 1 "First-time adoption of International Financial ReportingStandards". The Group has not adopted the reporting requirements of IAS 34 "Interim Financial Reporting". The transition date for the Group's applicationof IFRS is 1 February 2006 and the comparative figures for 31 July 2006 and 31January 2007 have been restated accordingly. Reconciliations of the incomestatement (previously profit and loss account), balance sheet and cash flowstatement from previously reported UK GAAP to IFRS are shown in the enclosednotes. The consolidated interim statements are prepared on the basis of allInternational Accounting Standards (IAS) and IFRS published by the InternationalAccounting Standards Board (IASB) that are currently in issue. An element ofuncertainty still surrounds the application of IFRS as the European Union maynot endorse all IASB pronouncements, new interpretations may be issued by theInternational Financial Reporting Interpretations Committee (IFRIC) on existingstandards and best practice continues to evolve. It is therefore possible thatthe accounting policies set out below may be updated by the time the Groupprepares its first full set of financial statements under IFRS for the yearending 31 January 2008. The information relating to the six months ended 31 July 2006 and 31 July 2007is unaudited and does not constitute statutory accounts. The comparativefigures for the year ended 31 January 2007 are not the Company's statutoryaccounts for that financial year. The statutory accounts for the year ended 31January 2007, prepared under UK GAAP, have been reported on by the Company'sauditors and delivered to the Registrar of Companies. The report of theauditors was unqualified and did not contain a statement under section 237(2) or(3) of the Companies Act 1985. The interim Financial Statements are unauditedand have not been reviewed by the auditors. -9- The consolidated Financial Statements have been prepared under the historicalcost convention. The basis of consolidation is set out below. Basis of consolidation The consolidated Financial Statements incorporate the results of eg solutionsplc and its subsidiaries as at 31 July 2007. Subsidiaries are consolidated until the date that control ceases to beexercised. The Financial Statements of subsidiaries are prepared for the same reportingperiod as the parent company, using consistent accounting policies. Allinter-company balances and transactions, including unrealised profits arisingfrom them are eliminated. Significant changes to disclosure-segmental analysis The Group has been considering the segmentation of the business (which hashistorically operated as one business segment), under the guidance in IAS 14. Itis still deliberating as to whether the primary segment under IAS 14 should beGeographical or Business as the operations going forward may be managed usingseparate business segments. The aim is to resolve this matter before the yearend and will result in additional disclosures being made detailing the tradingperformance and assets of each of the primary segments. Given the ongoing natureof these deliberations, the information has not been included in these interimFinancial Statements but will be included in the Financial Statements at 31January 2008. Property, plant and equipment Property, plant and equipment are stated at cost or valuation, net ofdepreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at ratescalculated to write each asset down to its estimated residual value over itsexpected useful life, as follows: Computer equipment - 50% straight lineOffice equipment - 15% reducing balanceFixtures and fittings - 15% reducing balanceMotor vehicles - 25% reducing balance Intangible assets Intangible assets comprises research and development expenditure. Internallygenerated software is capitalised in accordance with the research anddevelopment accounting policy. Amortisation is calculated using the straight line method to allocate the costof the software over its useful economic life, currently estimated to be sixyears. -10- Research and development Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors aresatisfied that a new or significantly improved product or process results andother relevant IAS 38 criteria are met as to the technical, commercial andfinancial viability of individual projects that would allow such costs to becapitalised. In such cases, the identifiable expenditure is capitalised andamortised over the period during which benefits are expected. Intangible assets are reviewed for impairment when events or changes incircumstances indicate that the carrying amount may not be recoverable. Leased assets and obligations All other leases are "operating leases" and the annual rentals are charged tothe Income Statement on a straight line basis over the lease term. Retirement benefits The Group operates a defined contribution pension scheme. The assets of thescheme are held separately from those of the Group in an independentlyadministered fund. The amount charged to the Income Statement in respect ofpension costs and other post retirement benefits is the contributions payable inthe year. Differences between contributions payable in the year and contributions actuallypaid are shown as either accruals or prepayments in the balance sheet. Revenue recognition Maintenance contracts Income in respect of maintenance contracts is spread over the length of thecontract to match the revenue and the costs. Long-term contracts Long-term contracts are assessed on a contract by contract basis and reflectedin the Income Statement by recording revenue and related costs as contractactivity progresses. Revenue is ascertained in a manner appropriate to the stageof completion of the contract and credit taken for profit earned to date whenthe outcome of the contract can be assessed with reasonable certainty. Amountsrecoverable on long-term contracts, which are included in 'Trade and otherreceivables', are stated at the net sales value of the work done less amountsreceived as progress payments on account. Excess progress payments are includedin 'Trade and other payables', as payments on account. Cumulative costs incurrednet of amounts transferred to cost of sales, less provision for contingenciesand anticipated future losses on contracts, are included as long term contractbalances in inventories. -11- Other Revenue Revenue represents the amounts (excluding value added tax) derived from theprovision of goods and services to customers. Income is recognised at the dateof invoice except where the income is either related to short-term or long-termcontracts which are then accounted for in accordance with these accountancypolicies. Operating loss / profit The operating loss or profit represents the profit or loss of The Group beforeaccounting for finance costs or income and income tax credits and expense. Taxation Current tax, including UK Corporation Tax is provided at amounts expected to bepaid / (recovered) using the tax rate and laws that have been enacted orsubstantively enacted at the balance sheet date. Deferred tax is recognised in respect of all timing differences that haveoriginated, but not reversed, at the balance sheet date where transactions orevents that result in an obligation to pay more tax in the future or a right topay less tax in the future have occurred at the balance sheet date. Timingdifferences are differences between the Company's taxable profits and itsresults, as stated in the Financial Statements, that arise from the inclusion ofgains and losses in tax assessments in periods different from those in whichthey are recognised in the Financial Statements. Deferred tax is measured at the average tax rates that are expected to apply inthe periods in which timing differences are expected to reverse, based on taxrates and laws that have been enacted or substantially enacted by the balancesheet date. Deferred tax is measured on a non-discounted basis. Share based payment The Company has implemented the requirements of IFRS 2 Share based Payment. IFRS2 has been applied to all grants of equity instruments after 7 November 2002that had not vested as at 1 February 2006. The Company operates an equity-settled share based compensation plan. The fairvalue of the employee services received in exchange for the grant of options isrecognised as an expense. The total amount to be expensed over the vestingperiod is recognised as an expense. The total amount to be expensed over thevesting period is determined by reference to the fair value of the optionsgranted measured by use of the Black-Scholes pricing method, excluding theimpact of any non-market vesting conditions (for example, profitability andgrowth targets). Non-market vesting conditions are included in the assumptionsabout the number of options that are expected to become exercisable. At eachbalance sheet date, the Company revises its estimates of the number of optionsthat are expected to become exercisable. It recognises the impact of therevision of original estimates, if any, in the profit and loss account, and acorresponding adjustment to reserves over the remaining vesting period. Theproceeds received net of any attributable transaction costs are credited toshare capital (nominal value) and share premium when the options are exercised. -12- Employee share ownership plans The Company has established an ESOP trust and has de-facto control of the sharesheld by the trust and bears their benefits and risks. The Company recordscertain assets and liabilities of the trust as its own. Finance costs andadministrative expenses are charged as they accrue. Consideration paid by theESOP scheme for shares are deducted in arriving at shareholders' funds. Foreign currency translation The consolidated Financial Statements are presented in pounds sterling which isthe Group's functional and presentational currency. The Group determines thefunctional currency of each entity and items included in the FinancialStatements of each entity are measured using the functional currency.Transactions denominated in foreign currencies are translated into sterling atthe actual rate of exchange ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are translated at ratesruling at the balance sheet date. Exchange differences are included in theIncome Statement. Trade and other receivables Trade receivables are recognised initially at fair value. A provision forimpairment of trade receivables is established when there is objective evidencethat the Group will not be able to collect all amounts due according to theoriginal terms of the receivables. The amount of the provision is the differencebetween the assets carrying amount and the present value of the estimated futurecash flows, discounted at the effective interest rate. The amount of theprovision is recognised in the Income Statement within administrative expenses. Cash and cash equivalents 'Cash and cash equivalents' include cash in hand, deposits held with banks andbank overdrafts. Segmental reporting The Group at present does not operate segmental reporting; however, it is theintention of the Group to move forward into future financial periods under aSegmental Basis as defined under IAS 14 on either Business Segment orGeographical Segment basis. Transition to IFRS The accounts for the year ending 31 January 2008 will be the first annualfinancial statements to be prepared in compliance with IFRS. The reconciliationshave been prepared to enable shareholders to gain an understanding of thefinancial standing of the business had the results been prepared under IFRS. -13- The Directors are reviewing the effect of IAS 38 at the date of transition. TheDirectors have reviewed in detail expenditure previously written off thatrelates to research and development from 1 February 2005. The adjustmentspresented in the following tables have been calculated from the records inaccordance with the Group's accounting policies. Amortisation has been chargedin the first month in which amounts have been capitalised. The value of researchand development expenditure capitalised may be subject to amendment. The transition date is 1 February 2006. The Company prepared its opening IFRSbalance sheet at that date. In preparing these extracts of Financial Statements in accordance with IFRS 1,the Company has applied the mandatory exceptions and certain of the optionalexemptions from full retrospective application of IFRS Exemptions from full retrospective application elected by the Company Property, plant and equipment The Company has elected to adopt the UK GAAP accounting values as the deemedcost for IFRS. Exceptions from full retrospective application followed by the Company Estimates All estimates made by the Company in preparing the Financial Statements underIFRS as at 1 February 2006 are consistent with estimates made under UK GAAP atthat date. This information is provided by RNS The company news service from the London Stock Exchange