Half Yearly Report

RNS Number : 0756T

EG Solutions plc

22 September 2010

 

 

IMMEDIATE RELEASE

22 September 2010

eg solutions plc

 

Half year results for the six months ended 31 July 2010

 

eg solutions plc ('eg' or 'the Company'; LSE-AIM: EGS), the back office optimisation software company, announces its unaudited half year results for the six months ended 31 July 2010.

 

Financial highlights

 

Figures in £000s	Unaudited 6 months ended 31st July		Growth
	2010	2009
Revenue	2,411	2,090	+ 15.4%
Gross margin (%)	63.7	63.1
Profit before tax before exceptional items*	145	56	+ 158.9%
Earnings per share (pence) - basic - diluted	0.5 0.4	0.4 0.3	+25.0% +33.3%
Operational cash flow	707	477	+48.2%

* Exceptional items: £67,000 professional services costs relating to the acquisition of XTAQ (2009: nil)

 

Key points

 

·; Strong interim results achieved despite continued challenging business environment

·; 15% revenue growth reflects solid performance across the Company

·; 159% growth in profit before tax (before acquisition costs)

·; Period-end cash (after funding acquisition) up 30% to £773,000 with 48% increase to £707,000 in operational cash flow for the period

·; XTAQ acquired in March and successfully integrated; pipeline converting as expected

·; Growing reputation for quality and excellence recognised with AccredIT UK award

·; Won Birmingham Post Business award for Export & International Trade

 

On outlook, Rodney Baker-Bates, Non-executive Chairman, stated:

 

"eg has demonstrated through these results that it has established a strong platform for growth and that there is momentum building in its financial performance.

 

"During the second half we expect to maintain growth in revenue, profitability and cashflow and our ongoing focus on cost control will continue to benefit our financial performance.

 

"With approximately 78 per cent. of anticipated revenues for the full year under contract, we are confident of the outturn for the full year and that we will achieve market expectations."

 

 

Contacts

 

eg solutions plc	01785-715772
Elizabeth Gooch, Chief Executive Officer	www.eguk.co.uk
Bankside	020-7367-8888
Simon Bloomfield or Rose Oddy
Arbuthnot Securities Limited	020-7012-2000
Tom Griffiths

 

About eg solutions plc

 

eg solutions plc is a global operations management 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 Company, 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

 

Introduction

 

During the first half eg has achieved strong growth in revenue, profit and cash flow and is on track to meet market expectations for the full year. This performance has been achieved despite the continued challenging business environment for the financial services sector.

 

In March we made significant progress with the strategic development of the business when we acquired XTAQ Limited, a developer and supplier of business performance measurement software. XTAQ has been successfully integrated and, since acquisition, sales of its products have been delivered as anticipated.

 

Financial performance

 

Revenue for the six months ended 31 July 2010 increased by 15 per cent. to £2.41 million (H1 2009: £2.09 million). Software licences, maintenance and software services contributed 73 per cent. of revenues (H1 2009: 72 per cent; full year 2009: 70 per cent) with the balance of 27 per cent. coming from implementation and training services (H1 2009: 28 per cent; full year 2009: 30 per cent).

 

It is encouraging that we have been able to maintain gross margins at above 63% following the integration of XTAQ which reflects our continued focus on managing the productivity of the team.

 

Profit before tax and exceptional items more than doubled to £145,000, compared to a profit of £56,000 for the same period last year. Reported profit before tax increased by 39 per cent. to £78,000 (H1 2009: £56,000) after a charge of £67,000 for professional services relating to the acquisition of XTAQ.

 

We continue to maintain tight control over costs which, along with improving margins, resulted in a 48 per cent. increase in operating cashflow to £707,000 (2009: £477,000). At 31 July 2010, cash and cash equivalents were £773,000, an increase of 30% (31 July 2009: £592,000). This is after paying £33,000 as part of the consideration for the acquisition of XTAQ.

 

The Board will not be declaring an interim dividend.

 

Operational review

 

The challenging market environment has meant a continuing focus by financial institutions on improving efficiency, increasing the attraction of the measurable financial benefits offered by eg's solutions.

 

During the first half eg's reputation for excellence within the financial services industry continued to increase, strengthening demand for its products and services resulting in growth in revenues for the period. This has been achieved with the Company winning contracts both through existing relationships and new customers.

 

In the UK a major achievement was the successful integration of XTAQ whose early performance has matched our best expectations. Implementation of the £430,000 order from the general insurance division of an existing eg client, announced in June, for XTAQ's Nuqleus 3D software is proceeding to plan. We are confident that we will be able to convert and expand XTAQ's order pipeline which will benefit revenues in the second half of this year and beyond.

 

UK administrative expenses increased by 15.3 per cent. during the period due to the overheads attributable to XTAQ. Following the integration of XTAQ, and as part of an ongoing review of costs, we expect to implement cost savings which will enhance profitability in the second half.

 

Internationally the highlight for the period was the strong performance by our South African business where sales increased twofold to £361,000 from £176,000 for the same period last year. Wins include a contract signed with one of South Africa's leading investment administration companies. We are pleased to report that our pipeline of new business in South Africa continues to grow.

 

Elsewhere implementation of a contract extension for eg operational intelligence®,with one of the largest Nordic bancassurance groups, proceeded to plan. We were also pleased to announce earlier this week a new order from the same client worth £55,000 in the current financial year to 31 January 2011 and a further £550,000 payable during the full contract term of 5 years.

 

We are pleased to announce that, on 20 September 2010, the Company won the Birmingham Post Business award for Export & International Trade. Earlier in the period our growing reputation for quality and excellence was recognised by an AccredIT UK award. These awards recognise the work we have done in the past three years to strengthen the fundamentals of our business.

 

Current trading and outlook

 

eg has demonstrated through these results that it has established a strong platform for growth and that there is momentum building in its financial performance.

 

During the second half we expect to maintain growth in revenue and profitability and our ongoing focus on cost control will continue to benefit our financial performance.

 

With approximately 78 per cent. of anticipated revenues for the full year under contract, we are confident of the outturn for the full year and that we will achieve market expectations.

 

 

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 31 July 2010

		Unaudited six months ended 31 July 2010 £000		Unaudited six months ended 31 July 2009 £000		Audited twelve months ended 31 January 2010 £000
Revenue		2,411		2,090		4,150
Cost of sales		(875)		(771)		(1,550)
Gross profit		1,536		1,319		2,600
Administrative expenses		(1,458)		(1,264)		(2,502)
Profit from operations		78		55		98
Finance income		-		1		1
Profit before tax		78		56		99
Income tax charge		(15)		(6)		(8)
Profit for the period		63		50		91
Other comprehensive income:
Exchange differences on translation of foreign currency		21		-		14
Total comprehensive income for the period		84		50		105
Profit and total comprehensive income attributable to equity shareholders of the Parent Company		84		50		105
Earnings per share
From continuing operations
- basic		0.5p		0.4p		0.7p
- diluted		0.4p		0.3p		0.6p

 

 

Condensed Consolidated Statement of Financial Position

at 31 July 2010

		Unaudited as at 31 July 2010 £000		Unaudited as at 31 July 2009 £000		Audited as at 31 January 2010 £000
Assets
Non-current assets
Intangible assets		2,226		1,563		1,705
Property, plant and equipment		59		63		50
		2,285		1,626		1,755
Current assets
Trade and other receivables		623		813		642
Inventories		18		17		18
Current tax receivable		63		150		50
Cash and cash equivalents		773		592		410
		1,477		1,572		1,120
Total assets		3,762		3,198		2,875
Liabilities
Current liabilities
Trade and other payables	8	1,742		1,569		1,169
		1,742		1,569		1,169
Non current liabilities
Loan Notes		143		-		-
Deferred tax liabilities		282		252		254
		425		252		254
Total liabilities		2,167		1,821		1,423
Net assets		1,595		1,377		1,452
Equity
Share capital		143		143		143
Share premium		2,910		2,910		2,910
Share-based payment reserve		267		239		208
Own shares held		(949)		(1,000)		(949)
Retained earnings		(776)		(915)		(860)
Total equity		1,595		1,377		1,452

 

 

 

 

Consolidated interim cash flow statement

for the six months ended 31 July 2010

	Unaudited six months ended 31 July 2010 £000		Unaudited six months ended  31 July 2009 £000		Audited twelve months ended 31 January 2010 £000
Operating activities
Profit before tax	78		56		99
Adjustments for:
Depreciation of property plant and equipment	4		25		42
Profit on disposal of property, plant and equipment	-		(1)		(1)
Amortisation of intangible assets	159		145		297
Finance income	-		-		(1)
Share option charge	59		21		39
Working capital adjustments:
(Increase) / decrease in receivables	196		(276)		(91)
Increase in inventories	-		-		(1)
Increase in payables	211		507		105
Net cash generated by operations	707		477		488
Income tax received	-		138		240
Net cash generated by operating activities	707		615		728
Investing activities
Purchases of intangible assets	(306)		(272)		(568)
Purchases of property, plant and equipment	(6)		(13)		(19)
Proceeds from sale of property, plant and equipment	-		-		4
Exercise of share options	-		-		2
Payment to acquire subsidiaries	(33)		-		-
Net cash acquired with subsidiaries	1		-		-
Interest received	-		-		1
Net cash used in investing activities	(344)		(285)		(580)
Net increase in cash and cash equivalents	363		330		148
Cash and cash equivalents at beginning of the period	410		262		262
Cash and cash equivalents at end of the period	773		592		410

 

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 July 2010

	Share capital	Share premium	Share based payment reserve	Own shares held	Retained earnings	Foreign exchange	Total
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Balance at 1 February 2009	143	2,910	218	(1,000)	(947)	(18)	1,306
Total comprehensive income	-	-	-	-	50	-	50
Share-based payments	-	-	21	-	-	-	21
Balance at 31 July 2009	143	2,910	239	(1,000)	(897)	(18)	1,377
Balance at 1 August 2009	143	2,910	239	(1,000)	(897)	(18)	1,377
Profit for the period	-	-	-	-	41	-	41
Other comprehensive gains	-	-	-	-	-	14	14
Total comprehensive income	-	-	-	-	41	14	55
Share based payments	-	-	18	-	-	-	18
Shares issued to employees	-	-	(49)	51	-	-	2
Balance at 31 January 2010	143	2,910	208	(949)	(856)	(4)	1,452
Balance at 1 February 2010	143	2,910	208	(949)	(856)	(4)	1,452
Profit for the period	-	-	-	-	63	-	63
Other comprehensive gains	-	-	-	-	-	21	21
Total comprehensive income	-	-	-	-	63	21	84
Share based payments	-	-	59	-	-	-	59
At 31 July 2010	143	2,910	267	(949)	(793)	17	1,595

This statement is unaudited

 

 

 

 

    

Notes to the Condensed Consolidated Interim Financial Statements

 

For the six months ended 31 July 2010

 

1. Basis of Preparation

 

The interim financial information consolidates the results of the company and its subsidiary undertakings made up to 31 July 2010. 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 2010.

 

The financial information for the 6 months ended 31 July 2010 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 2010 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 2010 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 2011. These are not expected to differ significantly from those adopted in the financial statements for the year ended 31 January 2010.

 

The interim report for the six months ended 31 July 2010 was approved by the Board of Directors on 22 September 2010.

 

2. Segment Reporting

Business Segments

 

egsolutions 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 earned by each segment before the allocation of administrative expenses, finance costs and tax.

 

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.

 

Under the transitional provisions of IFRS 8, the Group has re-presented its comparative disclosures for operating segments. In previous years, in accordance with IAS 14 'Segment Reporting', segmental analysis was provided on a product and geographical basis.

 

 

 

Segment information about these companies is presented below.

 

 

 

 

SEGMENT REPORT	UK			SA			Group
	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000
Revenue
External revenue	2,050	1,914	3,799	361	176	351	2,411	2,090	4,150
Inter-segment revenue	-	-	145	-	-	61	-	-	-
Total revenue	2,050	1,914	3,944	361	176	412	2,411	2,090	4,150
Gross profit	1,244	1,169	2,402	292	150	221	1,536	1,319	2,600
Administrative expenses	(1,299)	(1,127)	(2,251)	(175)	(153)	(289)	(1,458)	(1,264)	(2,502)
Inter-segment administrative expenses	-	-	-	-	-	-	-	-	-
Operating profit/(loss)	(55)	42	151	117	(3)	(68)	78	55	98
Finance income	0	1	1	-	-	-	0	1	1
Profit/(loss) before tax	(55)	43	152	117	(3)	(68)	78	56	99
Income tax charge	(15)	(6)	(8)	-	-	-	(15)	(6)	8
Profit/(loss) after tax	(70)	37	144	117	(3)	(68)	63	50	91
Other segmental information	UK			SA			Group
	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000	Unaudited six months ended 31 July 2010 £000	Unaudited six months ended 31 July 2009 £000	Audited twelve months ended 31 January 2010 £000
Segment assets	4,075	3,605	3,326	233	282	304	3,762	3,198	2,875
Segment liabilities	(2,105)	(1,753)	(1,347)	(608)	(757)	(832)	(2,167)	(1,821)	(1,423)
Net assets	1,970	1,852	1,979	(375)	(475)	(528)	1,595	1,377	1,452
Capital expenditure
Property, plant and equipment	11	13	18	2	7	1	13	20	19
Intangible assets	306	272	568	-	-	-	306	272	568

 

   

  

The Group had revenue streams from a small number of customers which made up 10% or more of the Group's revenue. The Group has elected not to disclose the identity of the customers.

 

Customer	Unaudited six months ended 31 July 2010 £000	% of total revenue	Unaudited six months ended 31 July 2009 £000	% of total revenue	Audited twelve months ended 31 January 2010 £000	% of total revenue
1	-	-	217	10%	-	-
2	-	-	234	11%	493	12%
3	465	19%	439	21%	815	20%
4	307	13%	-	-	-	-
5	318	13%	-	-	-	-

 

  

3. Taxation

 

	Unaudited six months to 31 July 2010 £000	Unaudited six months to 31 July 2009 £000	Audited twelve months to 31 January 2010 £000
Current tax:
United Kingdom	(13)	(31)	(50)
Tax in respect of prior periods	-	-	18
	(13)	(31)	(32)
Deferred tax:
Origination and reversal of temporary differences	28	37	72
Adjustments in respect of prior periods	-	-	(32)
Tax attributable to the Group and its subsidiaries	15	6	8

 

Domestic income tax is calculated at 28% (31/07/09 and 31/01/10: 28%) of the estimated assessable profit for the period.

 

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

 

 

	Unaudited six months to 31 July 2010 £000	Unaudited six months to 31 July 2009 £000	Audited twelve months to 31 January 2010 £000
The charge for the period can be reconciled to the profit per the condensed consolidated statement of comprehensive income as follows:
Profit before tax	78	56	99
Tax at the domestic income tax rate 28% (31/07/09 and 31/01/10: 28%)	22	16	28
Tax effects of expenses that are not deductible in determining taxable profit	20	10	21
Research and development	(27)	(20)	(42)
Prior year items	-	-	(14)
Movement in unprovided deferred tax	-	-	15
Tax charge / (credit)	15	6	8
Effective tax rate for the period	19%	11%	8%

 

  

4. Dividends

 

The directors do not propose the payment of an interim dividend.

 

5. Earnings per Share

 

From continuing operations
	Unaudited six months to  31 July 2010	Unaudited six months to 31 July 2009	Audited twelve months to 31 January 2010
Basic	0.5p	0.4p	0.7p
Diluted	0.4p	0.3p	0.6p

 

Weighted average number of shares in issue less shares held by the Employee Benefit Trust for calculating basic earnings per share	13,127,377	13,117,377	13,127,377
Weighted average number of shares held by the Employee Benefit Trust	1,166,470	1,176,470	1,166,470
Effect of dilutive share options issued in excess of those held in the Employee Benefit Trust	1,099,468	-	-
Weighted average for the purposed of calculating diluted earnings per share	15,393,315	14,293,847	14,293,847
Basic earnings attributable to equity shareholders	63	50	91

 

 

EPS has been calculated using the following methodology:

 

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

 

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees.

 

6. Intangible Assets

 

	Development costs £000
COST
At 1 February 2009	1,705
Additions - internally developed	272
At 1 August 2009	1,977
Additions - internally developed	296
At 1 February 2010	2,273
Additions - internally developed	305
Additions - acquisition of subsidiary	374
At 31 July 2010	2,952
AMORTISATION AND IMPAIRMENT
At 1 February 2009	271
Amortisation for the period	143
At 1 August 2009	414
Amortisation for the period	154
At 1 February 2010	568
Amortisation for the period	158
At 31 July 2010	726
CARRYING AMOUNT
At 31 July 2010	2,226
At 31 January 2010	1,705
Amortisation of £158k (31/07/09: £143k) has been charged to costs of sales.

 

 

7. Business Combinations

 

Acquisition of Xtaq Ltd

 

On 11 March 2010, the Group announced the acquisition of XTAQ Limited, a developer and supplier of business performance measurement software and associated services.

 

The consideration payable by the Company for XTAQ comprised: £33,333 in cash and the balance by the issue of £142,560 in 5 per cent. Convertible Unsecured Loan Notes 2012 ("Loan Notes"). On the second anniversary of their issue the Loan Notes are repayable or convertible into New Ordinary Shares at a share price of 82.5p. The Company may require holders to convert if, for at least 20 consecutive business days, the average share price of an ordinary share in the Company shall be 82.5p. No premises or property lease liabilities were acquired.

 

Following completion of the acquisition of XTAQ its employees were granted an aggregate of up to 1,393,938 options to subscribe for new ordinary shares in the Company, at an exercise price of 55p, the closing mid-market price of an ordinary share in the Company on 10 March 2010, being the last business day prior to the acquisition. The number of options that may be exercised will depend, on a sliding scale, on the achievement of pre-determined XTAQ revenue performance in the 12 months ending 31 March 2011 and are subject to a 4 year vesting period from the date of issue.

 

Founded in 1993 XTAQ was a privately owned business based in Bristol with 8 employees. XTAQ has developed its Nuqleus business performance measurement software which it distributes with support services to deliver improved operational performance and effectiveness. Customers deploy Nuqleus strategically throughout the enterprise or as a point solution to address particular operational management information requirements. XTAQ is currently deploying the latest version of its software product, Nuqleus 3D, and has created long-term relationships with its customers which, typically, use Nuqleus within processing centres, call centres and mobile professional workforces. XTAQ's current customers include Barclaycard, Citibank, GE Capital, Principality Building Society and Royal Bank of Scotland as well as a number of public sector clients.

 

In the year to 31 March 2009 XTAQ's audited turnover was £0.55 million, on which it incurred a loss before tax of £0.15 million. As at the same date XTAQ had a deficit on net assets of £0.05m.

 

The trade and net assets of Xtaq Ltd were hived up to the parent company on 1 June 2010.

 

The book values of the assets and liabilities on acquisition, which the Directors believe to be the fair values were as follows:

 

	£'000
Property, plant and equipment	7
Trade and other receivables	148
Cash and cash equivalents	1
Trade and other payables	(115)
Deferred revenue	(239)
Net liabilities acquired	(198)
Intangible assets relating to intellectual property on acquisition	374
Consideration	176
Satisfied by:
Cash	33
5% Loan notes	143
	176

 

Xtaq Limited contributed £0.14m to Group revenue and £(0.02m) to Group's profit for the period between the date of acquisition and the balance sheet date. If this acquisition had occurred on 1 February 2010 Group revenue would have been £2.48m and Group profit would have been £0.05m.

 

8. Trade and Other Payables

 

Trade and other payables are as follows:

 

	Unaudited six months to  31 July 2010	Unaudited six months to 31 July 2009	Audited twelve months to 31 January 2010
Payments on account	16	158	71
Trade payables	260	233	303
Other tax and social security	150	109	176
Accruals and deferred income	1,316	1,069	619
	1,742	1,569	1,169

 

9. Availability of announcement

 

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

This information is provided by RNS

The company news service from the London Stock Exchange