Final Results

22 March 2017

eg solutions plc

("eg", "eg solutions", the "Company" or the "Group")

Audited results for the 12 months ended 31 January 2017

"STRONG MOMENTUM IN A TRANSFORMATIONAL YEAR"

The Board of eg solutions plc (AIM:EGS), the back-office workforce optimisation company, is pleased to announce its audited results for the year ended 31 January 2017.

Financial Highlights

• Revenue for the year ended 31 January 2017 up 8% to £8.2m (2016: £7.6m)

• Adjusted EBITDA* for the year ended 31 January 2017 up 52% to £1.2m (2016: £0.8m)

• Adjusted Profit* Before Tax for the year ended 31 January 2017 of £0.3m (2016: £0.1m)

• Adjusted basic earnings per share* of 2.1 pence (2016: 1.2 pence)

• Basic earnings per share of 0.7 pence (2016: 0.8 pence)

* stated before charging share based payments of £22,000 (2016: £98,000) and non-recurring charges, including board restructuring costs, of £263,000 (2016: £nil)

Operational Highlights

• Refocused sales and distribution strategy

• Multiple new contract wins across multiple sectors and territories

• International Direct and Partner business now 37% of revenues (2016: 24%)

• Three new partners signed. Revenue stream of £1.45m, 18% of total, (2016: £0.34m, 4%)

• New eg mobile™ deployments agreed for 2017 across several customers

• Strong contracted forward order book with recurring revenues of £18.55m (2016: £17.40m)

Elizabeth Gooch, CEO of eg Solutions commented:

"I am delighted with the performance of the business, particularly in the second half of the year. In generating revenues of £5.7m and an adjusted EBITDA of £2.1m in a six-month period, we demonstrated just what the business is capable of. Our realigned strategy of focusing on sales and distribution channels is paying great dividends. We have over the past few months delivered multiple new contract wins, expanded our international business, increased our partner distribution channel and achieved sales of our new mobile platform.

There is real momentum within the business and I look forward to the new financial year with confidence."

CHAIRMAN'S STATEMENT

Overview 

I am pleased to be able to report on eg solutions' full year results for the year ended 31 January 2017, following my appointment as Chairman in June 2016.

Following a series of board changes for the Company in June and July of 2016, the new Board set about conducting a detailed internal review of the Company, its management, products, markets and potential for growth. Our review was designed to ensure that the Board was properly positioning the Company for profitable growth and to establish real momentum that would leverage off the operational gearing within the Company's business model and profitably scale the business more aggressively than has hitherto been the case.

The review concluded that having pioneered this new market space and developed a complete, purpose-built "out of the box" workforce optimisation software application for back offices, the Company has a well-established best-in-class product. The Company's strategy, to deliver substantial operational improvements with a guaranteed return on investment, continues to resonate with global clients who are constantly seeking to improve their customer service, control costs and manage risk in a climate of increasing economic uncertainty.

Our review further established that the marketplace provides the Company with considerable growth opportunities both domestically and internationally. The Board concluded that the Company has the potential for significant further growth over the next few years as we invest in new product innovation and distribution and the back-office workforce optimisation market continues to develop globally.

The review also highlighted, however, that the Company was sub-optimising on the delivery of its potential and that changes were required, with a concerted realignment of focus and resource needed to realise the Board's ambitions. A re-focusing and re-energising of the Company's strategy was required with greater emphasis required on sales and distribution channels as opposed to more corporate matters. These changes were quickly implemented.

I am delighted with the results of the changes made. As demonstrated by our record revenues and profitability achieved in the second half of the year, in which the Company delivered revenues of £5.7m (H1 2017: £2.5m) and an Adjusted EBITDA of over £2.1m (H1 2017: loss of £0.9m). The changes made have also laid solid foundations for the future: contracted future revenues have risen to record levels; new partnership agreements have been secured (each contributing revenue within the period) and investment in international territories has yielded a strong increase in export revenues. The Board was particularly pleased to announce a significant contract win in August 2016 alongside our strategic partner Aspect Software, with the world's leading social media corporation, demonstrating the flexibility of our software across a wide range of applications and sectors.

Board and Adviser Changes

The review also examined the membership and remuneration of the Board and its portfolio of advisers. I am pleased to report that the Company's Board and adviser costs have been reduced by £0.2m per annum, as compared to previous years, on an ongoing basis. The Board has also conducted a full review of all Directors' remuneration and has decided to introduce a revised long-term incentive plan to reward executives for delivery of long-term strategic goals. The plan will take the form of a performance driven share plan vesting over 3-5 years, subject to achievement of business performance targets. Further updates will be provided to shareholders in due course.

In January 2017 Bob Krakauer stepped down from the position of Chief Financial Officer at our strategic partner Aspect Software. However, we are delighted to announce that he will remain on the board of eg solutions in a non-executive capacity, in light of his substantial experience in global technology companies.

The Board also conducted a review of all advisers. This has resulted in the appointment of Yellow Jersey PR in the summer of 2016 as the Company's financial communications adviser and with the recent appointment of N+1 Singer as Nominated Adviser and Broker to the Company.

Outlook

The Board's focus on direct sales and distribution via both in-house resources and partners is beginning to reap rewards. We enter the new financial year with the Company in a good position and with solid fundamentals to capitalise on the attractive market opportunity at hand.

The Company has a profitable business with excellent products, a strong track record of delivery and good growth prospects. Our forward contracted order book, which now stands at a record £18.55m continues to grow, providing visibility and underpinning to our financial growth targets for the future.

There is a real sense of momentum within the business and the Board looks forward to the new financial year with renewed confidence. On behalf of the Board, I would like to thank our employees and shareholders for their continued support over the last year and we look forward to reporting on our continued progress as the leading back-office workforce optimisation company throughout 2017 and beyond.

Nigel Payne

Chairman

CHIEF EXECUTIVE'S REPORT

Overview

Following the strategic review undertaken by the Board our strategy has been refocused on increasing sales and distribution in four key areas: 

· Retaining and growing recurring revenues through sales of multi-year cloud deployments, to provide improved visibility and quality of earnings

· Retaining our blue-chip client base by sustaining tangible results achieved from our software and operations management practices, and expanding user footprint within these clients

· Winning new customers in existing and new sectors and territories by building on our strong financial services and outsourcers/BPO client base with proven deployments in Telecoms, Utilities, Social Media companies and the Public Sector 

· Increasing distribution by securing partnerships/ reseller arrangements

This new focus has quickly achieved success and, during the second half of the year, multiple contract wins were secured with new and existing customers in the UK and new territories. We have increased our distribution channels by signing three new partnership agreements and increased our reach within energy companies and the public sector. Major new contracts include: 

· Four new direct customer wins in the UK

· Six international customer wins with global firms in America, Asia and Europe

· Further roll-outs with four existing customers

· A proof of concept project with an Italian BPM partner for a major global bank

· A new Master Services Agreement with a leading Business Process Outsourcer including a contract with the UK's largest utilities provider

· New partnership and contract win with our existing technology partner GCI, distributing our software to the public sector

· Four new deployments of eg mobile™ agreed for 2017

Partner revenues increased substantially over the year and accounted for £1.45m of total revenues (2016: £0.34m), contributing to our growing international business which increased to 37% of total revenues (2016: 24%). 

We enjoyed our best ever performance in H2 2017 which offset the slower start to the year in H1 with revenues for the second half at £5.7m (H1: £2.5m) and EBITDA reaching £2.1m (H1: Loss of £0.9m). Total revenues for the year increased to £8.2m (2016: £7.6m) while our order book of repeat and recurring revenues grew to a record £18.5m (2016: £17.4m). This revenue will be recognised over the next four years, providing a firm foundation for sustained future revenue growth. 

Market Development 

Despite significant investment in technology, consumer facing organisations remain "people businesses" even where digital workers are used to augment human performance. Today these businesses are facing unprecedented change driven by: 

· Increasing demands for near/real-time responses from consumers who want to interact with companies from anywhere, at any time and from any platform in ways they have never done before

· The changing nature of work in the digital workplace and the influx of millennials which in turn is demanding a change in the way workers are engaged and managed as well as the technology they use

· Increasingly stringent regulatory and security requirements

· The continued need to contain costs and improve productivity

Most businesses are built on legacy IT platforms with traditional organisational structures and cultural attitudes. This is perhaps not the way of the world anymore. For such businesses to participate in the digital economy and ensure they have competitive advantage going forward, they need to transform their businesses: significantly reduce complex back office processing time, share insight into the whole customer ecosystem and develop operational agility. 

The emerging digital workplace is driving increased demand for more sophisticated workforce management solutions. As well as traditional workforce optimisation, organisations need to manage customer demand across multiple channels and locations, improve customer experience, engage their workforce and at the same time achieve quality, security and compliance standards. All with a computing experience that enables teams to be more effective. The market opportunity that eg addresses is a unique combination of workforce engagement and customer demand management, enabling global organisations to improve customer service, operational management, cost control and risk, regardless of where resources are located in the world, the office or the field. This opportunity continues to grow in line with the drivers for change. 

Product Development 

We have continued to invest in our market leading workforce optimisation software whilst also developing our mobile and cloud offerings. New versions of all existing products were released during the period and we moved to a bundled licence model under our Managed Cloud Service, where all major products are deployed for a single named user licence fee.

Key functionality released during the year included: 

· Team and individual challenges: incorporating gamification to improve workforce engagement with the platform

· Geolocation services to record worker locations and journeys

· Ability to attach any external content to a case that can be viewed simultaneously by office and field workers

· Further enhancements to eg mobile™ work allocation and real time dashboards for workers and Operational Managers on the move: providing consistent visibility of work streams and progress between colleagues, anywhere in the world

· Alerts & notifications so that eg work manager® can be used to keep end consumers notified of the progress of their case

· Launch of a new adaptor to automatically integrate eg's software with SAP

· Launch of a Facebook game to support awareness training for our customers

Work also commenced on a new user interface that will improve usability, be programmable to individual user needs and compatible with a work allocation bot to automate the work allocation process. These new features will be launched during the current financial year.

We continued to invest in security for our Managed Cloud Service to meet the stringent information security requirements of our customers. Further, we retained ISO27001 and IS09001 demonstrating our continued commitment to both information security and quality. We were also delighted to become an ILM Accredited Centre, enabling Managers and Team Leaders carrying out a deployment of eg's software and operational management best practices to achieve external accreditation by the Institute of Leadership & Management.

People

New senior executives have been appointed in key areas of the business and this will continue as we develop the leadership team to support our growth aspirations. 

The second half of the year required significant dedication from our people to achieve our forecasts without any increase in costs. The eg team absolutely relish the challenge to prove what they are capable of and their incredible performance in the second half of the year is testament to what the Company's 'can-do' values really mean. We were delighted to retain a Best Companies 2-Star "outstanding employer" accreditation for the second year running, and the Board would like to thank the eg team for their continued commitment and dedication. 

Elizabeth Gooch, MBE

Chief Executive

CHIEF FINANCIAL OFFICER'S STATEMENT

* stated before charging share based payments of £22,000 (2016: £98,000) and non-recurring charges, including board restructuring costs, of £263,000 (2016: £nil)

Revenue for the year ended 31 January 2017 was £8.21m (2016: £7.60m). Software licences, maintenance and software services revenue contributed 80% of total revenue (2016: 86%). Implementation and training services contributed 20% of total revenue (2016: 14%). Underlying sales growth for the year was 8%.

The Group achieved Adjusted EBITDA (stated prior to share based payments and non-recurring charges) for the year of £1.23m (2016: £0.81m). This delivered a strong Adjusted EBITDA margin of 15% (2016: 11%) and Adjusted Profit Before Tax of £0.31m (2016: £0.11m). The Company's performance in the second half contrasted starkly with that of the first six months of the year and demonstrated just how scalable the business model of the Company is at increased volume levels. The strong performance in the second half yielded revenue of £5.71m, an 128% increase on the first six months yielding an encouraging £2.1m of Adjusted EBITDA, at a margin of 37%.

During the year, future contracted revenues continued to increase and eg's order book now stands at £18.55m to be recognised over the next 4 years. This is composed of annually renewable maintenance revenues and multi-year fixed term hosting contracts, reflecting our continued focus on signing multi-year deals and the increasing demand for cloud solutions.

Overall gross margin for the year was 70% (2016: 72%). Administrative expenses increased to £5.77m (2016: £5.47) due to the increased cost of travel and accommodation brought about by increased international business. Prior year investment in developing new products has now started to be realised through product amortisation.

As at 31 January 2017, net cash was £2.4m (2016: £3.2m) following continued investment in research and development of £1.5m (2016: £1.4m) offset by £0.7m of cash generated by operating activities (2016: £0.3m). Trade and other receivables were £2.8m (2016: £1.7m) predominantly driven by £1.2m of accrued revenue due to the timing of sales that were weighted towards the end of the year.

Trade and other creditors were £2.8m (2016: £2.3m) with the increase predominantly driven by £0.2m increase in payment on account driven by the unbundling of hosted licence sales and £0.3m increase in trade creditors due to an increased use of contractors towards the end of the period driven by the upsurge in demand.

Adjusted Earnings per share on a basic and fully diluted basis was 2.1p and 2.0p. Earnings per share on a basic and fully diluted basis was 0.7p and 0.7p respectively. In the prior year, the basic earnings per share was 0.8p and on a fully diluted basis 0.7p. The Group has benefited from the favourable tax relief given on development expenditure. The tax credit was £130,000 (2016: £158,000).

The Company expect little impact on revenues as a result of Brexit. However, with increasing economic uncertainty the pressure on businesses to reduce costs will increase. The Company is well placed to assist organisations with cost control while improving customer service and will look to optimise the opportunity that this affords. We will also look to utilise resources in other lower cost economies to reduce our own costs.

Michael Woolley

Chief Financial Officer

The share-based payment reserve is a reserve to recognise a corresponding entry in relation to those amounts recognised in retained earnings in respect of share-based payments.

The own shares held reserve shows movements in the shares held in trust by the eg solutions Employee Benefit.

The share premium account contains the aggregate amount of the premiums received on issuing shares after the deduction of attributable expenses and commission.

The amount of transaction costs accounted for as a deduction from equity during the year was £nil (2016: £nil).

Retained earnings include the accumulated profits and losses arising from the Consolidated Statement of Comprehensive Income excluding foreign exchange differences on translation of foreign operations.

The foreign exchange reserve comprises all exchange difference arising from the translation of the financial statements of overseas operations.

Other reserves represent the equity component of the convertible loan notes, which is transferred to retained earnings when the instrument is settled or converted.

1. BASIS OF PREPARATION

This announcement was approved by the Board of Directors on 21 March 2017.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 January 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

The Group accounts for the year ended 31 January 2017 are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. This financial information has been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended 31 January 2017.

As a result of dealing with multinational companies, the revenue is disclosed by the entity in which it is contracted with.

6. AVAILABILITY OF THIS ANNOUNCEMENT AND ANNUAL REPORT & ACCOUNTS

Copies of this announcement are available on the Company's website: http://www.egsplc.com

The Annual Report & Accounts and Notice of Annual General Meeting will be sent to shareholders in due course and will also be available on the Company's website from the date of posting.

Enquiries:

About eg solutions plc

eg solutions is a back office workforce optimisation software Group. eg pioneered this new market space and developed the most complete, purpose built workforce optimisation software for back offices - the only solution that manages work, people and end-to-end processes wherever they are undertaken, anywhere in the world.

eg solutions' software is now used by leading UK, international and global companies in multiple industry sectors including financial services, healthcare and utilities. Using its forecasting, scheduling, real-time work management and operational analytics capabilities, eg delivers measureable improvements in service, quality, productivity and regulatory compliance. When supported by eg's implementation and training services eg guarantee a return on investment in short timescales.

The Group is listed on AIM, the London Stock Exchange's international market for smaller growing companies (EGS).

www.egoptimize.com