Half Yearly Report

Half year results for the six months ended 31 July 2013

eg solutions plc ('eg' or 'the Group'; LSE-AIM: EGS), the back office optimisation software company, announces its unaudited half year results for the six months ended 31 July 2013.

Financial summary

Key points

· Two large new customer wins in the period, including the first major win in the UK Utility sector

· £0.5m invested to:

o set up Aspect's American and Asian distribution capability;

o strengthen eg's own direct EMEA sales and worldwide delivery organisation; and

· £0.4m cash investment on R&D to enhance enterprise wide and international software capabilities

· Record pipelines of high value enterprise opportunities developed by both eg and Aspect Software Inc ("Aspect") reflecting increasing demand for Back Office Optimisation throughout the world - major new deals now expected in second half

· Several board changes - Rodney Baker-Bates retiring; Elizabeth Gooch to focus on Aspect partnership and product development; John O'Connell appointed Executive Chairman and CEO, all effective immediately.

On outlook, John O'Connell, Chairman, commented:

"Our financial results for this period reflect the investment we have made in the exclusive Strategic Distribution Partnership with Aspect in the Americas and Asia, as well as in our own direct sales channel in EMEA, whilst continuing to enhance our market leading products. The sales opportunities that have resulted from this investment underpin our confidence in making a quantum shift in the scale and scope of our business. I am looking forward to helping the Group achieve this goal in my new role."

Contacts

About eg solutions plc

eg solutions plc is a global back office optimisation software company. Our software provides historic, real-time and predictive Operational MI. When implemented with our training programme for managers and team leaders to use this intelligence, we guarantee improvements in operational results in short timescales.

The Group, which is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange, is committed to customer satisfaction and the ongoing development of its operations management solutions.

CHAIRMAN'S STATEMENT

Overview

Since joining the Board at the end of March this year I have observed the growth in demand from major organisations throughout the world seeking to improve their productivity and customer service using 'Back Office Optimisation' solutions, the market which eg pioneered with the launch of the eg operational intelligence® software suite some years ago.

During the six months ended 31 July 2013 our investment in sales, distribution and product development has positioned us to take advantage of this growing international market. This is evidenced by the significant number of high value opportunities that have already been identified by both eg and Aspect. The notable order won during the period in the UK Utility sector - a breakthrough for eg outside the Financial Services sector - provides clear evidence that we have a compelling business proposition. At the same time we have continued to invest in software product development, with R&D continuing at 20 per cent of total revenues for the period.

Offsetting our very positive progress in moving up the 'value chain', with many larger international projects in prospect, has been the increase in lead time for buying decisions. Higher value solutions are subject to more levels of approval compared to the processes involved in buying tactical, lower value solutions. As a result, we anticipate the growth in our sales pipeline to start converting into revenues from the second half of the year. We will continue to explore how lead times can be reduced, in order to make our new business closure rates more predictable.

Financial Performance

Total revenue for the period was £2.24 million (H1 2012/13: (£2.85 million). Software licences, maintenance and software services contributed 83 per cent of total revenue (H1 2012/13: 72 per cent; full year 2012/13: 69 per cent) with the balance of 17 per cent coming from implementation and training services.

Cost of sales was broadly maintained. The fall in gross margin for the period to 45.6 per cent (H1 2012/13: 55.2 per cent) reflects increased expenditure on new implementation personnel who will support our future growth but are not yet fully trained or deployed on client projects. Underlying gross margin was 50 per cent.

Administration expenses increased significantly to £1.76 million (H1 2012/13: £1.38 million) following the investment made in supporting Aspect and developing our direct sales and delivery organisation in EMEA. The total investment made in the period was £0.5 million.

The loss before tax of £0.74 million (H1 2012/13: profit before tax of £0.18 million) was predominantly the result of this increase in administration expenses due to the investments made, combined with lower revenue for the period.

As a result of an improvement in working capital, the operating cash outflow for the period was limited to £0.10 million (H1 2012/13: operating cash inflow of £0.87 million). Cash at 31 July 2013 was £0.41 million (31 January 2013: £0.04 million; 31 July 2012: £0.31 million) after the investment in February 2013 of £1.25 million by Aspect.

Total cash used in investing activities for the period was £0.44 million (H1 2012/13: £0.38 million), reflecting our continuing investment in R&D.

The Board is not proposing to pay an interim dividend.

Operational Review

We have continued to expand our customer base in the UK, including two significant new customers won during the period. The first contract followed a competitive process which eg won against incumbent suppliers. The second contract, announced in July and worth £1.2 million over 3 years, was the first win by eg in the UK Utility sector.

In February 2013 we announced the exclusive Strategic Distribution Partnership agreement for the Americas and Asia with Aspect, and its equity investment of £1.25 million for a 10.69 per cent shareholding in the Group.

Therefore, a priority for the period has been to invest in the resources required to support eg's relationship with Aspect as well as to build our own international sales and project delivery capability. In total, approximately £0.6 million was invested in these areas including:

· building a global training team to support the growth of both Aspect and eg;

· the appointment of Head of Delivery with responsibility for recruiting and training people for sales and delivery for eg and to support Aspect, as well as for eg's graduate programme; and

· the appointment of Head of Software Support to enhance Maintenance & Support services, including the 24/7 needs of both Aspect and our own global customers.

Already, this investment has generated significant new opportunities, with the eg and Aspect Sales Pipelines growing to a record level, currently valued at approximately £24 million, including a number of three year hosted contracts.

The relationship with Aspect is developing well, the operational integration has proceeded according to plan and the new business opportunities being generated, both by Aspect and the core eg business, demonstrate the continuing emergence of the Back Office Optimisation market and growing demand for eg's market leading products and solutions.

In order to maintain our product market leadership and competitive edge, we have increased our investment in R&D. Product development for the period included completing integration components with Aspect's product suite and the successful addition to eg operational intelligence® of localisation functionality. This enables users in multiple regions to use the software on a single installation with multiple languages, timezone and region settings.

Board appointments, responsibilities and remuneration

In addition to the appointments already announced some further important Board changes are being made with immediate effect. Firstly, having completed six months since handing over to me as Chairman, Rodney Baker-Bates has decided to retire from the Board. Secondly, in line with her recommendation to the board, the Board responsibility of Elizabeth Gooch will be to now focus predominantly on ensuring the Aspect partnership is mutually successful and on product development. Elizabeth's title will be Founder & President. As a consequence I have accepted the offer to become Chairman and Chief Executive Officer. 

As Chairman Rodney Baker-Bates led the Board through some challenging phases to a point where eg is now poised for significant growth. On behalf of the Board and shareholders I would like to express our most sincere appreciation for his unwavering and steadfast support for Elizabeth Gooch and her team, as well as to me since I joined the Board. I am delighted that Rodney, as a significant shareholder, has indicated his continuing confidence in the Group's future.

In July Rob Glenn was appointed Chief Operating Officer with responsibility for EMEA and driving the direct sales effort. At the same time, Spence Mallder, Senior Vice President, General Manager Workforce Optimisation and Chief Technology Officer of Aspect, joined the Board as a Non-Executive Director in accordance with the partnership agreement between Aspect and the Group. We will seek to appoint an additional Non- Executive Director to replace Rodney at the earliest opportunity, but at an Executive level we now have a Board capable of taking eg to the next stage in its development.

During the period PricewaterhouseCoopers completed a review of the Group's executive rewards in order to align the remuneration and incentives received by all Board directors and senior executives with the interests of shareholders. The Board has accepted the recommendations of PricewaterhouseCoopers in full and the reward schemes proposed are now being implemented.

Current Trading and Outlook

Our financial results for this period reflect the investment we have made in the exclusive Strategic Distribution Partnership with Aspect in the Americas and Asia, as well as in our own direct sales channel in EMEA, whilst continuing to enhance our market leading products. The sales opportunities that have resulted from this investment underpin our confidence in making a quantum shift in the scale and scope of our business. I am looking forward to helping the Group achieve this goal in my new role.

John O'Connell

Chairman

18 September 2013

Consolidated Interim Statement of Cash Flows

for the six months ended 31 July 2013

This statement is unaudited

Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 31 July 2013

1. Basis of Preparation

The interim financial information consolidates the results of the Company and its subsidiary undertakings made up to 31 July 2013. The Company is a limited liability company incorporated and domiciled in England & Wales and whose shares are listed on the Alternative Investment Market.

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. It does not therefore include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 January 2013.

The financial information for the 6 months ended 31 July 2013 is unaudited. The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK groups listed on the Alternative Investment Market (AIM), in the preparation of these interim financial statements.

Full accounts of eg solutions plc for the year ended 31 January 2013 have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 498(2-4) of the Companies Act 2006.

Significant accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 31 July 2013 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those that are expected to be adopted in the annual statutory financial statements for the year ending 31 January 2014. These are not expected to differ significantly from those adopted in the financial statements for the year ended 31 January 2013.

The interim report for the six months ended 31 July 2013 was approved by the Board of Directors on 18 September 2013.

2. Operating Segments

eg solutions plc provides IT and software support services by operating two distinct companies in the United Kingdom ("EGUK") and in South Africa ("EGSA"). Financial information is reported to the Board for both companies individually with revenue and operating profits split by geographical location. Segment revenue comprises of sales to external customers and excludes finance income. Segment profit reported to the board represents the profit before tax earned by each segment.

For the purposes of assessing segment performance and for determining the allocation of resources between segments, the Board reviews the non-current assets attributable to each segment as well as the financial resources available. All assets and liabilities are allocated to reportable segments. Information is reported to the Board of Directors on a company basis as management believe that each company exposes the Group to differing levels of risk and rewards due to local economic conditions. The segment profit or loss, segment assets and segment liabilities are measured on the same basis as amounts recognised in the financial statements, as set out in the accounting policies.

Segment information about these companies is presented below.

During the period the Group had revenues from 2 customers amounting to £660,000 in total that individually made up more than 10% of revenues generated (6m to 31 July 2012 2 customers amounting to £805,000 in total).

3. Taxation

Domestic income tax is calculated at 23.2% (31/07/12 and 31/01/13: 24.33%) of the estimated assessable profit for the period.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

4. Dividends

In respect of the current year, the directors are not proposing to pay an interim dividend.

5. Earnings per share

EPS has been calculated using the following methodology:

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the number of weighted average ordinary shares during the period. The number of shares excludes shares held by an Employee Benefit Trust.

For diluted earnings per share, the number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees and 5% Convertible Loan Notes.

6. Intangible assets

Amortisation has been included in cost of sales in the Condensed Consolidated Statement of Comprehensive Income.

7. Trade and other payables

Trade and other payables are as follows:

8. Availability of announcement

Copies of this announcement are available from the Group's registered office at Dunston Business Village, Stafford Road, Dunston, Stafford, Staffordshire ST18 9AB and from www.eguk.co.uk.