24 Sep 2008 07:00
| FOR IMMEDIATE RELEASE | 24 September 2008 |
eg solutions plc
HALF YEARLY RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2008
eg solutions plc ("eg solutions" or "the Company"; LSE-AIM: EGS), the business software application vendor, is pleased to announce its unaudited half yearly results for the six months ended 31 July 2008.
Key points:
On Outlook, Rodney Baker-Bates, non-executive Chairman stated:
"Closed and contracted orders for the second half of the current financial year are 25% higher than at the same time in 2007 and current trading continues in line with management expectations."
CONTACTS
| eg solutions plc | Today: 020-7367-8888 |
| Elizabeth Gooch, Chief Executive Officer | Thereafter: 01785-715772 |
| Violetta Parylo, Finance Director | www.eguk.co.uk |
| Bankside | 020-7367-8888 |
| Steve Liebmann, Simon Bloomfield or Andy Harris | |
| Brewin Dolphin Ltd (Nominated Adviser) | 0845-213-4853 |
| Richard Evans, Director Corporate Finance |
About eg solutions plc
eg solutions plc develops and sells real-time Operations MI (management information) software applications, together with associated implementation services and training. These solutions deliver improved efficiency, reduced costs and guaranteed ROI for clients. Its primary markets are in process based functions within the financial services sector in the UK and internationally. eg solutions plc is quoted on AIM: EGS.
CHAIRMAN'S STATEMENT
Introduction
We are pleased to announce our results for the half year to 31 July 2008 which show a return to profitability. This has been achieved against an economic background which has been far from easy.
Following a very difficult trading period throughout 2007, shareholders will recall from previous announcements that the Directors outlined plans to not only strengthen the fundamentals of the business, but also to ensure that eg solutions was restored to profitable growth within a realistic timescale.
Although we are delighted with our achievements in the year to date, we remain committed in our continued drive to achieve further, sustainable improvements in performance.
Financials
The Company's financial performance for the first half of the current financial year demonstrated considerable recovery, resulting in a positive and profitable result overall.
Initiatives to ensure that overheads remain under strict control have continued to be important and will remain valid for the foreseeable future.
Revenue in the six months ended 31 July 2008 was £2.27 million, an improvement of 10% on the comparable period in the prior year (H1, 2007: £2.07 million). Within that growth, there has been a sustained improvement in the quality of revenue. During the half year, the combination of software licences, software services and maintenance increased a further 9% to contribute 61% of revenue with the balance coming from implementation services. This compares with 56% for FY 2008 and only 36% in FY 2006.
Profit before tax was £0.05 million, compared with a loss of £0.64m in the comparable half year. Earnings per share were 0.4 pence, as opposed to a loss per share of 3.3 pence incurred in the comparable period last year.
The Company generated cash of £0.59 million during the half year (H1, 2007: cash outflow of £0.80 million) with cash balances increasing to £1.15m as at 31 July 2008 (£0.88 million as at 31 January 2008 and £1.31 million as at 31 July 2007).
Dividend
The Board will not be declaring a dividend at the half year stage.
Operating review - UK markets
Despite challenging market conditions in the Financial Services industry new contract wins were secured within the first trading month of the 2008 financial year. Nationwide Building Society commissioned a further implementation of our software within their specialist lending division. This was followed by success at Co-operative Financial Services, where we secured a major software services project to embed our software suite into an integrated solution that will automate the processing of inbound and outbound correspondence. Finally, a further new implementation was secured within the travel and tour operator payments teams of the Co-operative Travel Group.
It is very pleasing to report that these contracts have progressed well, with good results being achieved for these clients.
These contract wins demonstrate the continuing interest in our solutions within our core markets. Going forward, we remain firmly focused on securing new business opportunities across the UK.
Operating review - international markets
We have maintained our objective to develop our business within specific new international markets in order to reduce revenue concentration on UK financial services.
South Africa has been a primary target market, both in terms of distribution and as an extension of our software development team. Since the operation was established in January 2007, we have secured five new business contracts within this country, with several more opportunities developing in our new business pipeline.
During the half year period, we announced a new contract win with a major life office in South Africa and since the half year end we have signed a new contract with South Africa's largest short-term insurer where there is the potential for up to 1,000 users of the Company's software. Both contracts have opportunities for further roll-outs in the future.
UK head office relocation
In June 2008, the Company relocated its UK head office to new accommodation located at Dunston Business Village in Stafford. The cost of this move was kept to £55,000, which has been taken against the profit for the period under review.
Our new premises can accommodate our future growth requirements while also providing our clients with improved training facilities at our newly launched Training Academy.
People
During the period, we were delighted to appoint Violetta Parylo as Finance Director and Company Secretary with effect from May 2008.
Violetta brings extensive experience in delivering strategic, financial and business value to the Company, having held a number of senior finance positions within both UK and international companies.
eg solutions is driven by a committed team of people, all of whom are dedicated to the Company's on-going success. On behalf of the Board, I would like to take this opportunity to thank everyone for their continued hard work and commitment during the first half of the financial year.
Current trading and outlook
Amidst the difficulties currently being experienced within the financial services sector as a whole, we continue to focus on delivering applications and services which, demonstrably, help our clients to reduce costs. It is our belief that such 'spend to save' projects will attract continued investment as the sector seeks to reduce its cost base.
Closed and contracted orders for the second half of the current financial year are 25% higher than at the same time in 2007 and current trading continues in line with management expectations.
Rodney Baker-Bates
Non-executive Chairman
23 September 2008
Condensed Consolidated Income Statement
for the six months ended 31 July 2008
| Unaudited six months ended 31 July 2008 £000 | Unaudited six months ended 31 July 2007 £000 | Audited twelve months ended 31 January 2008 £000 | |
| Revenue | 2,269 | 2,067 | 4,123 |
| Cost of sales | (929) | (722) | (1,431) |
| Gross profit | 1,340 | 1,345 | 2,692 |
| Administrative expenses | (1,309) | (2,031) | (3,589) |
| Operating profit / (loss) | 31 | (686) | (897) |
| Finance income | 22 | 48 | 82 |
| Profit / (loss) before tax | 53 | (638) | (815) |
| Income tax credit | 1 | 212 | 159 |
| Profit / (loss) for the period | 54 | (426) | (656) |
| Profit / (loss) attributable to ordinary shareholders | 54 | (426) | (656) |
| Earnings / (loss) per share | |||
| basic | 0.4p | (3.3p) | (5.0p) |
| fully diluted | 0.4p | (3.3p) | (5.0p) |
Condensed Consolidated Balance Sheet
as at 31 July 2008
| Unaudited as at 31 July 2008 £000 | Unaudited as at 31 July 2007 £000 | Audited as at 31 January 2008 £000 | |
| Non current assets | |||
| Property, plant and equipment | 90 | 147 | 117 |
| Development assets | 1,111 | 559 | 911 |
| Deferred tax assets | - | 291 | - |
| Total non current assets | 1,201 | 997 | 1,028 |
| Current assets | |||
| Trade and other receivables | 943 | 1,261 | 849 |
| Current tax receivable | 157 | - | 157 |
| Cash and cash equivalents | 1,151 | 1,309 | 878 |
| Total current assets | 2,251 | 2,570 | 1,884 |
| Total assets | 3,452 | 3,567 | 2,912 |
| Equity | |||
| Issued capital | 143 | 143 | 143 |
| Share premium | 2,910 | 2,910 | 2,910 |
| Share based payment reserve | 216 | 154 | 191 |
| Own shares held | (1,000) | (1,000) | (1,000) |
| Retained earnings | (342) | (192) | (383) |
| Shareholders' funds | 1,927 | 2,015 | 1,861 |
| Non current liabilities | |||
| Deferred tax | 85 | 163 | 82 |
| Total non current liabilities | 85 | 163 | 82 |
| Current liabilities | |||
| Trade and other payables | 589 | 717 | 774 |
| Deferred revenue | 851 | 672 | 195 |
| Total current liabilities | 1,440 | 1,389 | 969 |
| Total liabilities | 1,525 | 1,552 | 1,051 |
| Total liabilities and equity | 3,452 | 3,567 | 2,912 |
Consolidated interim cash flow statement
for the six months ended 31 July 2008
| Unaudited six months ended 31 July 2008 £000 | Unaudited six months ended 31 July 2007 £000 | Audited twelve months ended 31 January 2008 £000 | |
| Operating activities | |||
| Operating profit / (loss) before tax | 31 | (686) | (897) |
| Adjustments | |||
| Depreciation of property plant and equipment | 62 | 45 | 85 |
| Amortisation of intangible assets | 104 | 44 | 124 |
| Share option charge | 25 | 31 | 68 |
| Exchange rate difference | (13) | (7) | 10 |
| Working capital adjustments | |||
| Increase in trade and other receivables | (94) | (741) | (329) |
| Increase / (decrease) in trade and other payables | 475 | 511 | (1) |
| Net cash generated/ (used in) operations | 590 | (803) | (940) |
| Investing activities | |||
| Purchase of property, plant and equipment | (35) | (60) | (70) |
| Intangible assets - internally developed | (304) | (307) | (716) |
| Interest received | 22 | 48 | 82 |
| Corporation tax | - | - | 91 |
| Net cash used in investing activities | (317) | (319) | (613) |
| Net increase/ (decrease) in cash and cash equivalents | 273 | (1,122) | (1,553) |
| Cash and cash equivalents at beginning of the period | 878 | 2,431 | 2,431 |
| Cash and cash equivalents at end of the period | 1,151 | 1,309 | 878 |
Condensed Consolidated Statement of Changes in Equity
for the six months ended 31 July 2008
| Share capital | Share premium | Retained earnings | Own shares held | Share based payment reserve | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 February 2007 | 143 | 2,910 | 263 | (1,000) | 123 | 2,439 |
| Total recognised income and expense | - | - | (656) | - | - | (656) |
| Share based payments | - | - | - | - | 68 | 68 |
| Foreign exchange difference | - | - | 10 | - | - | 10 |
| At 31 January 2008 | 143 | 2,910 | (383) | (1,000) | 191 | 1,861 |
| At 1 February 2008 | 143 | 2,910 | (383) | (1,000) | 191 | 1,861 |
| Total recognised income and expense | - | - | 54 | - | - | 54 |
| Share based payments | - | - | - | - | 25 | 25 |
| Foreign exchange difference | - | - | (13) | - | - | (13) |
| At 31 July 2008 | 143 | 2,910 | (342) | (1,000) | 216 | 1,927 |
This statement is unaudited.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended 31 July 2008
1 Basis of Preparation
The interim financial statements are prepared on the basis of the accounting policies set out in the Group accounts for the year ended 31 January 2008.
The interim financial statements are unaudited. The statements 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 interim report for the six months ended 31 July 2008 was approved by the Board of Directors on 16 September 2008.
2 Segment Reporting: Business Segments
The Group has elected to segment its operations on the basis of 'geographical segmentation of operations'. The group has determined that this is the most appropriate segmental split to reflect the nature of the Group's operations. The group has two distinct companies operating in different geographical areas with different economic and political conditions and a different maturity of client and client requirements. These are:
EGUK - United Kingdom
EGSA - South Africa
Segment information about these companies is presented below.
| UK | South Africa | Group | |||||||
| Unaudited six months ended | Unaudited six months ended | Audited twelve months ended | Unaudited six months ended | Unaudited six months ended | Audited twelve months ended | Unaudited six months ended | Unaudited six months ended | Audited twelve month ended | |
| 31 July 2008 | 31 July 2007 | 31 January 2008 | 31 July 2008 | 31 July 2007 | 31 January 2008 | 31 July 2008 | 31 July 2007 | 31 January 2008 | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Revenue | |||||||||
| External revenue | 2,191 | 1,939 | 3,775 | 78 | 128 | 348 | 2,269 | 2,067 | 4,123 |
| Inter-segment revenue | - | - | 300 | - |
| 125 | - | - | 425 |
| Total revenue | 2,191 | 1,939 | 4,075 | 78 | 128 | 473 | 2,269 | 2,067 | 4,548 |
| Segment result before items listed below | 1,302 | 1,233 | 2,657 | 38 | 112 | 35 | 1,340 | 1,345 | 2,692 |
| Administrative expenses | (1,309) | (2,031) | (3,589) | ||||||
| Operating profit | 31 | (686) | (897) | ||||||
| Finance income | 22 | 48 | 82 | ||||||
| Profit before tax | 53 | (638) | (815) | ||||||
| Income tax credit / (expense) | 1 | 212 | 159 | ||||||
| Profit after tax | 54 | (426) | (656) | ||||||
| Segment net assets / liabilities | 1,938 | 1,839 | 1,822 | -11 | 176 | 39 | 1,927 | 2,015 | 1,861 |
Based on risks and returns the directors consider that the secondary reporting format is by business segment. The directors consider that there is only one business segment being IT and software support services. Therefore the disclosures for the secondary segment have already been given in these financial statements.
3 Taxation
| Unaudited six months to 31 July 2008 £000 | Unaudited six months to 31 July 2007 £000 | Audited twelve months to 31 January 2008 £000 | |
| Current tax: | |||
| Domestic | - | - | (156) |
| Adjustments in respect of prior periods | - | 8 | 7 |
| - | 8 | (149) | |
| Deferred tax: | - | ||
| Current tax | (1) | (220) | 16 |
| Adjustments in respect of prior periods | - | (26) | |
| Tax attributable to the Group and its subsidiaries | (1) | (212) | (159) |
Domestic income tax is calculated at 28% (31/07/07 and 31/01/08: 30%) of the estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
| Unaudited six months to 31 July 2008 £000 | Unaudited six months to 31 July 2007 £000 | Audited twelve months to 31 January 2008 £000 | |
| The charge for the period can be reconciled to the profit per the income statement as follows: | |||
| Profit / (loss) before tax | 53 | (638) | (815) |
| Tax at the domestic income tax rate 28% (31/07/07 and 31/01/08: 30%) | 15 | (191) | (245) |
| Tax effects of expenses that are not deductible in determining taxable profit | (32) | 23 | 67 |
| Other timing differences | 20 | (288) | (3) |
| Research and development | (56) | (39) | (98) |
| Tax losses carried forward | 52 | 286 | - |
| Marginal rate of tax | - | - | 137 |
| Prior year adjustments | - | (3) | (19) |
| Effect of different tax rates of subsidiaries operating in other jurisdictions | - | - | 2 |
| Tax credit | (1) | (212) | (159) |
| Effective tax rate for the period | 2% | 33% | 20% |
4 Dividends
In respect of the current year, the directors propose that no interim dividend will be paid to shareholders.
5 Earnings / (loss) per Share
| From continuing operations | |||
| Unaudited six months to 31 July 2008 £000 | Unaudited six months to 31 July 2007 £000 | Audited twelve months to 31 January 2008 £000 | |
| Basic | 0.4p | (3.3p) | (5.0p) |
| Diluted | 0.4p | (3.3p) | (5.0p) |
EPS has been calculated using the following methodology:
Profit / (Loss) after Tax
--------------------------------------------------------------------------------------------------------
Allotted issued and fully paid share less shares owned by the Employee Benefit Trust.
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 Benefit Trust that are not currently allocated as options
6 Development Assets Consolidated
| Development costs £000 | |
| Cost | |
| At 1 February 2007 | 358 |
| Acquisitions - internally developed | 716 |
| At 1 February 2008 | 1,074 |
| Acquisitions - internally developed | 304 |
| At 31 July 2008 | 1,378 |
| Amortisation and impairment | |
| At 1 February 2007 | 39 |
| Amortisation | 124 |
| At 1 February 2008 | 163 |
| Amortisation for the year | 104 |
| At 31 July 2008 | 267 |
| Carrying amount | |
| At 31 July 2008 | 1,111 |
| At 31 January 2008 | 911 |
Amortisation of £104k (31/07/07: £35k) has been charged to costs of sales.
7 Related Party Transactions
Trading transactions
During the year, group companies entered into the following transactions, for the purchase of goods and services, with related parties who are not members of the Group.
| Unaudited six months to 31 July 2008 £000 | Unaudited six months to 31 July 2007 £000 | Audited twelve months to 31 January 2008 £000 | |
| Related parties | 11 | 2 | 15 |
The above value relates to a single party related to the Group due to the owner/manager of the business being a close family member (as defined under IAS24) of the Chief Executive of the Group.
Other Debtors include £24k (31/01/08: £24K) due from E A Gooch. The maximum amount outstanding during the period was £24k (31/01/08: £34k).
The Group purchased the associated services under its normal terms of trade and payment was made under normal trading arrangements.