Foresightgr Regulatory News (FSG)

6 Jun 2006 07:00

Focus Solutions Group PLC05 June 2006 6th June 2006 Focus Solutions Group plc Final Results Focus Solutions Group plc, a leading provider of customer management solutionsfor the financial services industry, today announces its results for the yearended 31 March 2006. Key Highlights •Turnover up 21% to £6.58 million (FY2005: £5.43 million) •Operating profit before reorganisation costs £367,000 (FY2005:£2,000) •Operating profit £110,000 (FY2005: £2,000) •Profit before tax £128,000 (FY2005: £26,000) •Cash of £0.1 million (2005: £1.0 million); debt free •Basic and diluted earnings per share of 0.45 pence (2005: 0.1 pence) •Appointment of new Chief Executive, Richard Stevenson • Significant new contract wins during the year included: Life and pensions market • Barclays plc • HSBC Bank plc Mortgage market • Home of Choice • Capital Home Loans • Homeloan Management Limited General insurance market • Assurant Solutions • Global reseller agreement with BEA Systems Inc Commenting on the results and prospects, Richard Stevenson, Chief Executive,said: "This has been a successful year for Focus, with strong growth in turnover andcontinued improvement in profitability. Significant contracts were won with newcustomers in the bancassurance market, and the UK mortgage market. The mortgagemarket now accounts for 30% of turnover and the Group has also made goodprogress in the general insurance and government sectors. Recent actions torestructure the Group have reduced overheads and streamlined delivery. Focus isnow is in a better position to exploit the potential of its existing markets andblue chip customer base. We also intend to develop our strategy to increaseannuity revenue and accelerate growth through a combination of joint ventures,partnerships and potentially acquisitions in its target markets." For further information please contact: Focus Solutions Group 01926 468300 Richard Stevenson Chief ExecutiveMartin Clements Finance Director Seymour Pierce Limited 0207 107 800 Mark Percy Chairman's Statement Business review This has been a successful and important year for the Group. Having deliveredour first ever profit as a public company last year, Focus has delivered anotheryear of much improved results. Sales increased by 21% from £5.4 million inFY2005 to £6.6 million in FY2006 and operating profits before reorganisationcosts increased to £367,000 from just £2,000 in FY2005. Operating profit beforeinterest and tax increased from £2,000 in FY2005 to £128,000 in FY2006. These results represent further proof of the fundamental change in prospects forthe business over the past two years. The majority of the growth has beengenerated from our core UK financial services market. Our strategy to growrevenues outside of the UK financial services market has generated some initialsales although progress has been slower than we would have liked. Operations Focus has built on the progress made last year and delivered another excellenttrading performance. The business won important new customers as well asincreasing revenues generated from the established customer base. Our success inopening up new sectors within the financial services market has continued asrevenue from the mortgage and general insurance sectors fuelled growth. Revenuesfrom the mortgage sector in FY2006 totalled £2.0 million, representing 30% ofturnover. This is a hugely important proof point for the Group as it providesevidence of our ability to transfer our success from one market to another. The changes in regulations in the life and pensions market have meant some majorfinancial institutions are now changing their sales processes, and theirsupporting technology, to sell products from a range of providers. Focuse-trading solutions and extensive footprint in the life insurance market has putit in a strong position to support the organisations who have chosen to becomedistributors, or multi-tied, and this has resulted in some major strategicprojects. During the year, the Group made significant progress on two multi-million poundprojects, with a leading life and pensions provider and with Barclays Bank PLC.Near the close of the year, we won our first order from HSBC Bank plc. Thisproject, initially worth £250k, involves the provision of consultancy servicesto HSBC to assist in the scoping and establishment of requirements for a majornew project being undertaken by the bank. Changes in regulations affecting the sales of mortgages have also been drivingdemand from organisations across the mortgage sector and the customer base nowincludes mortgage providers, distributors and portals. New customers signed during the year include Home of Choice, Capital Home Loansand Homeloan Management and revenues have been generated as a result thestrategic partnership signed with Trigold, one of the major industry portals. During the year, the Group also won its first contract in the general insurancesector with Assurant Solutions. The development of the business outside UK financial services has been a centralplank of our strategy for some time. The highlights in this regard for the yearincluded further development of the relationship with BEA Systems Inc with thesigning of a global reseller agreement in November 2005, the signature of ourfirst distribution agreement with Geoff Smith Associates (GSA), a major supplierof document management systems to the UK police market, and the development ofrelationships with a number of potential partners and systems integrators. During the year, it has become clear that government targets for e-governmentare driving the public sector to look at how, and where, it captures the datafor any services it makes available electronically. The characteristics andcapabilities of our XML toolkit, goal technology, could provide highly effectivesolutions to these problems so we have focused attention on buildingrelationships with established suppliers to the public sector and the initialresults have been encouraging. Management and staff The past year has seen a major change in the management structure of the Group,with the aim of taking the business forward to the next stage in itsdevelopment. In March 2006, Richard Stevenson replaced John Streets as GroupChief Executive. Richard joined Focus after a successful career in the softwaresector, with particular exposure to the retail banking, insurance and publicsectors. Richard has a record of creating significant revenue growth and bringswith him a strong business development ethos. I am confident that Richard willbring particular benefit to the business in the further development andexecution of Group strategy. John, the Group's founder, remains with Focus as a Non-Executive Director. Ithank him for his vision and his exceptional efforts over the past ten years toturn his vision into a successful business. In April 2006 we announced that MarkThelwell was leaving the Group after nearly 8 years service. We wish Mark wellin his future endeavours. The enthusiasm and resilience of our staff over a number of difficult years hasstarted to pay off with major new customer wins, top line growth and an improvedproduct offering. I thank everyone for their continued loyalty and hard work. Funding Over the past three years, the business has largely, with the exception of asmall secondary placing, been funded out of trading. We have won several largevalue, long term contracts and this has underpinned the improvement in thefinancial performance of the business and transformed our prospects. However, ithas also had an impact on our working capital requirements as we have had toagree deferred payment terms with some major customers. As a result, while theprofitability of the business has continued to improve, it has remained cashabsorbing in the short term. We expect this profile to start to change duringthe forthcoming year. The Board will continue to review the business's funding requirements and willensure that it has the appropriate funding structure to be able to achieve itsstrategic objectives. Outlook Current trading remains in line with expectations, underpinned by the changes wehave made to reduce overheads and streamline the business. Our sales efforts arefocussed on well defined opportunities within the wider UK financial servicesmarket, where regulation change continues to drive demand, and in the UKgovernment sector via our partnerships with a limited number of major systemsintegrators. In addition, our established customer base continues to providesignificant opportunities. The Group's management team have a clear strategy for both organic andnon-organic growth and the prospects remain good for the business. Following twosuccessive years of profitable trading, the Board is now seeking to acceleratethe growth in its business by a combination of partnerships, joint ventures and,potentially, acquisitions. Alastair M TaylorChairman Chief Executive's Statement Overview I joined the Group towards the end of FY2006 and have been pleased with theoutcome of my initial review of the business, in particular with the Group'sreputation with its key customers and the quality, expertise and commitment ofits employees. However, there is much more to be done to bring direction andmomentum to all parts of the Group's business and to build upon the progressmade in FY2006. Financial performance In my first Chief Executive's statement, it gives me great pleasure to be ableto report, that the Group achieved record sales and profits in FY2006. At thetrading level, operating profits before re-organisation costs increased from£2,000 to £367,000. Turnover increased by 21% from £5.4 million in FY2005 to£6.6 million in FY2006, driven principally by the strong sales performance inthe UK financial services market. Gross profit increased by a more modest 11%from £4.1 million to £4.5 million, reflecting a change in sales mix, with afurther move towards professional services. This resulted in a reduction ingross margins, from 75% towards 69%. During the first half of FY2006 we sufferedfrom a shortage of sufficiently qualified full time staff. As a result, forseveral months, we employed a number of contractors at a higher cost to thebusiness than permanent staff. Over the course of the year, almost allcontractors were replaced. Despite making great progress in a number of areas, revenues outside thefinancial services market in FY2006 were disappointing. We have thereforereduced costs in line with our revised expectations. Direct management costshave been reduced and both sales management and service delivery are now managedfrom a Group level. As at 31st March 2006, cash deposits totalled £0.1 million (FY2005: £1.0million), reflecting the timing of payments on a number of major projects. TheGroup also has bank facilities totalling £350,000 should we require them. Thebalance sheet remains debt free. Basic and diluted earnings per share for the year ended 31st March 2006 were0.45 pence per share, compared with 0.1 pence for the year ended 31st March 2005 The Board's primary objective is to provide the resources necessary for thebusiness to grow and create a business of sustained profitability. In the longterm this represents the best opportunity for return on investment. Accordingly,we currently have no plans to pay a dividend in the near future. During the year the Group undertook a project reviewing the possibility ofoutsourcing some of our service delivery capability to an Indian outsourcingcompany. Unfortunately, despite the best efforts of both parties, it becameapparent that such a delivery mechanism was inappropriate for our RapidApplication Development approach and as a consequence we terminated the projectin March 2006. However, having undertaken the review, we have re-structured ourservice delivery organisation which has led to us adopting a more efficient andcost effective approach. Developing our financial services business The majority of our revenue during the year has again been generated bydelivering online and offline Point of Sale solutions and mortgage extranets toUK financial service companies to help them comply with regulatory requirements,improve their efficiency and reduce the cost of the sales process. From ourinitial stronghold in the life and pensions sector, we have successfullybroadened our market coverage to the mortgages sector where new regulation isbedding in. Our solutions support the customer facing, front office elements of the salesprocess. To enhance our propositions we have begun to partner with other best ofbreed suppliers, particularly those who focus on the back-office elements of theprocess within the life, pensions and mortgage markets. Over the past year therehas been considerable consolidation in our market and we believe that thisapproach allows us to provide a compelling alternative to the offerings that ourcompetitors are aiming to bring to the market. The life and pensions market In recent years, changes in legislation in the life and pensions market directlyled to high investment in technology to support the new distribution models thathave begun to evolve. As a result the level of new business activity in FY2006was at an all time high. We built on an exceptionally strong customer base,adding new business from blue-chip companies such as Co-Operative FinancialServices and HSBC while strengthening our relationships with new projects atexisting customers such as Barclays and Scottish Equitable. The growth of business with major financial institutions Barclays, HSBC andCo-Operative Financial Services is particularly significant for the Group. Allthree are new customers to the Group over the past two years. Since the start ofdepolarisation in December 2004, the leading UK retail banks have taken anincreasing share of the life and pensions market. The contract with Barclays relates to the development of an electronic Point ofSale solution to support the sale of regulated life and pensions products forBarclays corporate and personal customers. This solution has been integratedwith the leading industry portal, Assureweb, linking the quotation and newbusiness processes. The HSBC contract relates to the provision of consultingservices which will be carried out in the main during FY2007. The Co-OperativeFinancial Services contract relates to the licencing of goal:technology,although we are hopeful this will lead to further value-add services in thefuture. The mortgage market The mortgage market continued to prove a good source of new clients as lendersresponded to the changes in regulation introduced in November 2004 with "M-Day".Mortgages plc continued to invest in its Extranet while Capital Home Loans andHomeloan Management started developing new e-commerce facilities with Focus. Thestrategic partnership with Trigold delivered its first new clients for Focusincluding The Woolwich, West Bromwich Building Society and Future Mortgages. Astrong pipeline is now in place with Trigold to bring further new names onboard. The general insurance market In January 2005, the Financial Services Authority's regulatory powers wereextended to cover general insurance. This extension of the regulatoryenvironment has opened up new opportunities for Focus. During the year, wedelivered our first Point of Sale system to the general insurance market, withAssurant Solutions our first customer in the general insurance sector. This POSsolution delivers a single electronic application that will help intermediariessell a compliant suite of protection products in the most efficient manner. Building an entry strategy for the government market In the last year, we have entered the government market with our goal:technologyproduct set. Our expertise in financial services has been well received by bothdirect government customers, and by suppliers of e-government solutions. We haveidentified these e-government solutions suppliers as our preferred channel tothe government market place to enable us to distribute our products widely,whilst mitigating the risk of entry into this complex market. Driven by legislative requirements for lower cost of development and ownership,together with increasingly onerous e-government targets, goal:technologysolutions have wide appeal in central government, local government and in somespecialist functions such as police forces. We have developed a set of offerings around the products, which give ourdistribution partners a wide choice of technologies, platforms and channels forthe delivery of rich citizen-facing applications. These range from "stop andsearch" applications using digital pen technology to advanced portal processingfor a major government department. All solutions are delivered using the goal:technology architecture. In our first few months of operation, we have achieved a small but significantfoothold in the UK government market. Our pipeline in these markets is growing,as is our partner base. Our partners already include two major systemsintegrators to the UK government. We have also acquired as a distributionpartner a highly regarded solution specialist in the police market, Geoff SmithAssociates. Research and development After the year end, our negotiations with Her Majesty's Revenue and Customsregarding our claims for R&D tax credits for FY2003 and FY2004 were finallyconcluded and a refund of £179k has been received. Meanwhile, our expenditure on research and development remains significant inrelation to our size. It is essential for the future prosperity of the Groupthat we continue this investment. Goal:technology is one of our cleardifferentiators against our competition, both in our established markets and inthe new sectors we are moving into. Combining goal:technology with our businessprocess knowledge and delivery expertise puts us in a strong position to win newbusiness. IFRS As an AIM listed company, the Group is required to adopt International FinancialReporting Standards (IFRS) for accounting periods starting after 1st January2007. When the FY2008 results are reported, the FY2007 results will be restatedunder IFRS. The first statements to be reported under IFRS will be the InterimResults for the six months ending 30th September 2007. We will work with our auditors to assess the impact of IFRS on our accounts. Wehave not yet quantified the impact, but we expect the greatest change to be inthe area of research and development costs where some expenditure may have to becapitalised in future if certain criteria are met. Strategy The Group's strong position in the UK financial services sector is currentlyunderpinning our growth and profitability. The structural changes in the marketas a result of competition and the regulatory environment are continuing and weplan to increase our penetration of both the life and pensions and mortgagemarket by exploiting our expertise in these sectors. Focusing on winning a smallnumber of high value contracts helps us develop close relationships with majorfinancial institutions and leads to considerable on-going business. One of ourkey objectives in 2007 is to increase the proportion of our turnover that isrepresented by annually recurring revenues. These currently represent only avery small proportion of total revenues. Our established strategy, to exploit opportunities outside of the UK financialservices market by making inroads into the Government market, is gainingtraction as we build on the partner relationships we have established this yearand continue to grow the specialist knowledge and resources we need to makeprogress in this market. We recognise that in today's market, Focus must grow faster to build asustainable business. One of our goals for FY2007 is to evaluate complementarypartnerships, joint ventures and potential acquisitions which will strengthenour product and market coverage in the point of sale solutions market, withparticular emphasis on the mortgage market. We aim to deliver much more than just technology. Our objective is to fullyunderstand our customers' business processes and to deliver significant addedvalue to our customers by developing solutions that dramatically reduce theircosts and enhance their ability to adapt to changes in their markets. Richard StevensonChief Executive Consolidated Profit and Loss Report31st March 2006 Year ended Year ended 31 March 31 March 2006 2005 Notes £'000 £'000 Turnover 2 6,585 5,431 Cost of sales (2,055) (1,361) ________ ________Gross profit 4,530 4,070 OverheadsDistribution costs (1,424) (1,221)Administrative expenses (includingre-organisation costs of £257k, FY 2005: nil) (2,996) (2,847) ________ ________ (4,420) (4,068) ________ ________ Operating profit 110 2 ________ ________________________________________________________________________________________ Operating profit before 367 2re-organisation costs Re-organisation costs (257) - ________ ________ Operating profit after 110 -Re-organisation costs ________ ________________________________________________________________________________________ Profit on ordinary activities before interest 110 2 Net interest receivable 18 24 ________ ________Profit on ordinary activities before taxation 128 26 Taxation - - ________ ________Profit on ordinary activities after taxation beingretained profit for the year 128 26 ========= ======= Earnings per ordinary shareBasic 3 0.45p 0.1pDiluted 3 0.45p 0.1p The operating profit for both years arises from the company's continuingoperations. No separate statement of total recognised gains and losses has been presented asall gains and losses have been dealt with in the profit and loss account. Consolidated Balance Sheet31st March 2006 2006 2005 £'000 £'000 Fixed assets Tangible assets 135 137 _____ ____ Current assets Debtors 4,147 2,665 Cash at bank and in hand 123 1,007 ______ ______ 4,270 3,672 ______ ______ Creditors: Amounts falling due within one year (2,056) (1,598) _______ _______ Net current assets 2,214 2,074 ______ ______ Total assets less current liabilities being net assets 2,349 2,211 ===== ===== Capital and reserves Called up share capital 2,864 2,859 Share premium 9,832 9,827 Merger reserve 220 220 Profit and loss account (10,567)(10,695) ________ ________ Shareholders' funds - equity interests 2,349 2,211 ====== =====Approved by the Board on 5 June 2006 R J Stevenson M J Clements Director Director Consolidated Cash Flow Statement for the year ended 31st March 2006 Year ended Year ended 31 March 31 March 2006 2005 £'000 £'000 Net cash outflow from operating activities (833) (454) Returns on investments and servicing of finance 18 24 Taxation - - Capital expenditure and financial investment (79) (63) ________ ________ Cash outflow before management of liquidresources and financing (894) (493) Management of liquid resources - 250 Financing 10 16 ________ ________ Decrease in cash in the year (884) (227) ======== ====== Reconciliation of net cashflow to movement in net funds Year ended Year ended 31 March 31 March 2006 2005 £'000 £'000 Decrease in cash in the period (884) (227) Cash outflow from decrease in liquid resources - (250) ________ _______ Movement in net funds in the year (884) (477) Net funds at start of year 1,007 1,484 ________ ________ Net funds at end of year 123 1,007 ====== ====== Notes to the Accounts 1. The financial information set out above does not constitute statutoryaccounts for the years ended 31 March 2006 and 2005, but is derived from thoseaccounts. Statutory accounts for the year ended 31 March 2005 have beendelivered to the Registrar of Companies and those for the year ended 31 March2006 will be delivered following the Company's annual general meeting. Theauditors have reported on those accounts; their reports were unqualified and didnot contain statements under s237(2) or (3) Companies Act 1985. In order to be consistent with standard industry practice, the format of theConsolidated Profit and Loss account has been changed. The prior year numbershave been restated in accordance with the revised format. 2. Turnover The geographical analysis of turnover by destination is: 2006 2005 £000 £000 United Kingdom 6,560 5,381North America 25 50 ____ _____ 6,585 5,431 _____ _____ 3. Earnings/(loss) per share The basic earnings per share is based on attributable profit for the year of£128,000 (FY2005: £26,000) and on 28,629,000 ordinary shares (FY2005:28,588,000) being the weighted average number of ordinary shares in issue duringthe year. The diluted earnings per share is based on attributable profit for the year of£128,000 (FY2005: £26,000) and on 28,852,000 shares (FY2005: 29,150,000)calculated as follows: Year Year ended ended 31 March 31 March 2006 2005 000's 000's Basic weighted average number of ordinary shares 28,629 28,588 Dilutive potential ordinary shares: Share Options 223 562 _______ ________ 28,852 29,150 ======== ======= 4. Report and Accounts Copies of the Report and Accounts will be circulated to shareholders shortly andmay be obtained after the posting date from the Company Secretary, FocusSolutions Group Plc, Cranford House, Kenilworth Road, Leamington Spa, CV32 6RQ. 5. AGM The AGM will be held at 4.30 pm on 2 August 2006 at the registered office of theCompany (Cranford House, Kenilworth Road, Leamington Spa, CV32 6RQ). This information is provided by RNS The company news service from the London Stock Exchange