Final Results

eg solutions plc

Preliminary results for the year ended 31 January 2016

eg solutions plc (AIM: EGS), the back office optimisation software company, is pleased to announce its audited preliminary results for the year ended 31 January 2016.

Increasing Visibility & Quality of Earnings

· Continued increase in order book of multi-year contracts to £17.4m (2015: £15.4m)

· Revenue excluding one off deals increased 17% on prior year

· Strong balance sheet maintained with £3.2m cash at the year end

FINANCIAL SUMMARY

* Adjusted EBITDA and Adjusted Profit before tax is stated prior to charges in respect of share based payments of £98k (2015: £46k)

OPERATIONAL HIGHLIGHTS 

· Multiple contract wins with new and existing customers, including further wins in Telecoms, Local Government and Retail Banking

· Continued investment in our market leading product with the launch of eg mobile™ and eg forecasting™

· Higher Gross margin in second half due to increased software revenues

Duncan McIntyre, Chairman, commented:

"We have had a solid year with a continued increase in our order book and a strong increase in recurring revenues. We have invested in our product and it remains the market leader. This lays solid foundations for the future and we will continue to work to develop our sales and marketing capability to deliver on the clear and substantial market opportunity."

Ends

CONTACTS

A management webinar open to all investors will be hosted by Equity Development at 12.15pm on 23 March 2016; please register at http://www.equitydevelopment.co.uk/index.php?p=news

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.

Our software is now used by leading UK, international and global companies in multiple industry sectors including financial services, healthcare and utilities.

Using our forecasting, scheduling, real-time work management and operational analytics capabilities, we deliver measureable improvements in service, quality, productivity and regulatory compliance. When supported by our implementation and training services we guarantee return on investment in short timescales.

Regardless of who is serving the customer - call centre, back offices, branches or the field - our solutions provide true insight into the full customer service process and promote world-class operational management capability.

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

CHAIRMAN'S STATEMENT

Overview

FY2016 was a year in which eg continued to strengthen its market position and establish a platform for sustained profitable growth. The Group's Order Book continued to grow with the majority of new orders based on hosted solutions over three years or more.

Towards the end of the period a number of sales did not close as expected resulting in lower than expected revenues. Our emphasis continues to be the improvement and development of our sales and marketing capability in the current year. As previously disclosed, FY2015 benefited from one-off sales totalling approximately £1.1m. Excluding these contracts, underlying sales growth was approximately 17% over the last 12 months. Our focus on cost control during the year is reflected in a small profit before tax for the year compared to the small loss originally expected, at the start of the financial year.

Demand for back office workforce optimisation solutions continues to grow in line with the global trend of businesses looking to improve customer service, operational efficiency, cost control and risk management. The Group's products deliver guaranteed benefits for its customers in each of these key areas and we have an enviable track record of successful implementations and customer retention. This market demand, together with our ability to develop and deliver products which meet our customers' needs, provides a firm foundation for the Group.

The investments we have made this year have further strengthened our market position. We invested significantly in the Group's product set culminating in the launch in September 2015 of eg mobile™ and eg forecasting™. Both new products were well received and have opened up a number of new sales opportunities with new and existing clients.

Aspect Software Inc ("Aspect")

In August 2015, Bob Krakauer was appointed Non-Executive Director, replacing Spence Mallder on the Board as a representative of Aspect.

On 9 March 2016, Aspect submitted a petition for bankruptcy protection in the U.S. Bankruptcy court for the District of Delaware in Wilmington (along with four related entities). Our current assessment is that there will be no impact on earnings for the Group.

As set out in our announcement on 10 March 2016, we will continue to monitor developments and make further announcements as appropriate.

Capital Reduction & Articles

Taking into account feedback from investors and our prospects for future profitability, the Board will be seeking approval for a proposed reduction in capital at the AGM on 17 May 2016.

We will also be seeking approval for an update to our Articles of Association in line with The Companies Act 2006.

Current Trading & Outlook

FY2016 has been a year where we have made solid progress with growing our order book and significantly enhancing our product suite, laying the foundations for sustainable, long-term profit growth. The progress we have made in increasing recurring revenues continues in line with our objective of significantly improving the visibility and quality of earnings.

CHIEF EXECUTIVE'S STATEMENT

Overview

The successful placing in January 2015 raised £3.2m to continue the investment required to earn our place as the global leader in the market we pioneered. The focus of the remainder of FY2016 was then to build on the successes of the prior year and increase investment in the fundamentals of the business to prepare for growth.

Our growth strategy is based on three core objectives:

· Increasing recurring revenues to provide improved visibility and quality of earnings

· Winning new customers in existing and new territories and across a range of business sectors

· Retaining our blue chip customer base by sustaining the tangible results achieved from using our software and Operational Management practices

Our improved balance sheet has enabled us to invest for the long-term in additional sales resources and marketing activities to win new clients both in the UK and in key new territories. We have also invested in developing our Managed Cloud Service proposition, including achieving ISO27001 accreditation to ensure we meet the information security requirements of our customers.

As a result, in-year revenue remained similar to the prior year, while recurring revenues increased 35% year-on-year. Our order book of multi-year contracts now stands at £17.4m, up a further £0.3m since our trading update in January 2016. This revenue will be recognised over the next four years providing a firm foundation for sustained future revenue growth. We will continue to focus on sales of multi-year contracts.

Customer Base Growth

Multiple contract wins were secured with new and existing customers in the UK and in new territories. We increased our footprint in existing market verticals such as financial services and successfully developed business in new territories through partners and direct sales. Major new contracts during the period include:

· A licence extension at a major European bank to include Collections & Fraud teams

· A licence extension at a global bank to incorporate commercial & investment banking

· Further roll-outs for a major UK third party outsourcing company

· Further deployments with an international Telecoms provider and a new customer win in mortgage lending in the USA through the Aspect partnership

· Two new banking sector pilots in Europe and Australia with significant roll-out potential

· Major upgrade for a UK banking customer

· Contract win with the insurance division of a challenger bank

· Conversion of perpetual licences for an existing client to our Managed Cloud Services

In addition, having secured our first contract in Local Government in January 2015, over the remainder of the year we successfully completed deployments within 18 local government authorities around the UK.

In December 2015, a strategic review of our customer value proposition by third party advisors concluded that customer satisfaction remains high, with our solutions described as "well packaged and well executed by great people".

Our strategy of providing excellent delivery based on guaranteed returns, together with significant and sustainable operational improvements, continues to resonate with our customers.

Market Development

The emerging back office optimisation market continues to develop. Businesses are seeking to improve the end customer experience across multiple channels, to optimise their use of resources across these channels and to maintain compliance with increasingly stringent regulatory and security requirements.

With the increase in digital business, customer transactions are shifting from the traditional and physical to data-centric methods, giving rise to an increase in transactions across all channels. At the same time, customers now expect near or real-time responses, regardless of how they transact, and a key driver for businesses is to significantly reduce complex back office processing time and achieve real-time insight into the whole customer eco-system.

Investment in the back office has traditionally been a low priority but it can no longer be ignored. It is a major contributor to the success of the customer experience and, according to Frost & Sullivan's recent report, can often be the engine that drives organisational performance from behind the scenes.

Core functionality within the eg operational intelligence® software suite, our flagship product, was designed to address these requirements:

· Multi-channel transaction capture to provide a single view of all work regardless of channel;

· Real-time, multi-level, multi-dimensional operational intelligence for customer operations and customer experience management;

· Efficient allocation of work to an increasingly disparate, mobile workforce wherever it is in the world, together with the means to automatically evaluate their performance.

As a result, we are well placed to support both the digital and omni-channel requirements of our customers, enabling them to deliver consistent service and optimise performance across all channels regardless of where their workforce is and, at the same time, providing true insight into the end-to-end customer journey.

Product Development

Following the placing in January 2015, the Group has invested significantly in accelerating product development. Investment in R&D is up 65% on FY2015. We have continued to invest in our market-leading software to ensure we can continue to meet customer requirements "out of the box". This has always been a unique selling point for our product, enabling our customers to quickly realise benefits and achieve guaranteed return on investment.

As a result of this investment, two new products, eg forecasting™ and eg mobile™, were launched in September 2015. The development of eg forecasting™ was part funded by Innovate UK, the UK's innovation agency, through its Smart Scheme. Innovate UK offers funding to small and medium-sized enterprises to engage in R&D projects in the strategically important areas of science, engineering and technology.

The new eg mobile™ product is an extension of the eg operational intelligence® software suite and was launched at The Shard in London on 23 September 2015. It is designed to enable work to be allocated to, and the performance monitored of, mobile and remote workers. It also provides alerts and notifications for operational managers on the move on KPI's that affect performance, such as approaching SLA deadlines and breaches.

These new developments further enhance our product suite with advanced forecasting and capacity planning capability, as well as extending the reach of our software to planning teams, mobile workers and remote operational managers.

Our software now ensures work can be allocated and performance can be optimised regardless of business channel and wherever work takes place in the world.

People

Employee engagement is also a high priority for our business and morale continues to be high. During FY2016 we were delighted to achieve an Outstanding Employer accreditation by workplace engagement specialists Best Companies, recognising our commitment to employee satisfaction and engagement.

The whole eg team worked extremely hard during the year to deliver excellent results for our customers throughout the world. I would like to thank them for their contribution and continuing commitment.

CHIEF FINANCE OFFICER'S STATEMENT

Financial Results

Revenue for the year ended 31 January 2016 was £7.60m (2015: £7.54m). Software licences, maintenance and software services contributed 86% of total revenue (2015: 68%) with the balance coming from implementation and training services. Full year 2015 revenue benefited from one-time licence fees and one-off support services of £1.06m. Excluding these, underlying sales growth is approximately 17%.

By maintaining our focus on cost control, the Group achieved a profit before tax of £0.01m (2015: £0.41m) compared to the loss originally expected. Adjusted EBITDA (stated prior to share based payments) was £0.81m (2015: £1.26m).

During the period recurring revenues increased 35% year-on-year. eg's order book now stands at £17.4m to be recognised over the next four years. This is composed of annually renewable maintenance revenues and multi-year fixed term hosting contracts, reflecting our focus on signing multi-year deals.

Gross margin in the first half of the year was 66% but improved to 77% in the second half due to the high proportion of software licences sold. Overall gross margin improved 2% to 72% (2015: 70%). Administrative expenses increased to £5.5m (2015: £4.8m) following increased investment in sales and marketing.

As at 31 January 2016 net cash was £3.2m (2015: £4.3m) following investment in research and development of £1.4m (2015: £0.85m). £0.08m cash was generated from financing activities (2015: £3.76m).

Trade receivables were higher at £1.10m (2015:£0.45m) due to the timing of sales that were weighted towards the end of the year. These amounts have all now been received. Cash generated from operating activities was £0.27m for the period (2015: £1.73m).

Earnings per share on a basic and fully diluted basis was 0.8p and 0.7p respectively. In the prior year the basic earnings per share was 3.6p and on a fully diluted basis 3.5p.

The Group has benefited from the favourable tax relief given on development expenditure. The tax credit in respect of the year was £158k (2015: £134k).

eg has an existing strategic partnership and re-seller agreement with Aspect dating back to February 2013. Aspect also owns a 9.5% equity interest in eg and has a representative on the eg board.

On 9 March 2016 Aspect submitted a petition for bankruptcy in the US Bankruptcy Court. Approval is sought under the terms of the petition for a consensual restructuring of Aspect's debt as well as a fully underwritten rights offering of $60m of first-lien debt. General unsecured creditors of Aspect are to be paid in full in cash, though existing debt and equity lines are being compromised in whole or in part. It is understood that Aspect intends to complete the restructuring process by the end of June 2016.

Aspect have confirmed that all amounts due prior to the bankruptcy petition will be paid in full whilst amounts incurred post the petition will be paid after the restructuring is complete. Aspect believe that post the restructuring their balance sheet will be substantially stronger and they will be better placed in the market.