Interim Results

24th Sep 2008 07:00



FOR IMMEDIATE RELEASE

24 September 2008

eg solutions plc

HALF YEARLY RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2008

eg solutions plc ("eg solutions" or "the Company"; LSE-AIM: EGS), the business software application vendor, is pleased to announce its unaudited half yearly results for the six months ended 31 July 2008.

Key points:

 

On Outlook, Rodney Baker-Bates, non-executive Chairman stated:

"Closed and contracted orders for the second half of the current financial year are 25% higher than at the same time in 2007 and current trading continues in line with management expectations."

CONTACTS

eg solutions plc	Today: 020-7367-8888
Elizabeth Gooch, Chief Executive Officer	Thereafter: 01785-715772
Violetta Parylo, Finance Director	www.eguk.co.uk
Bankside	020-7367-8888
Steve Liebmann, Simon Bloomfield or Andy Harris
Brewin Dolphin Ltd (Nominated Adviser)	0845-213-4853
Richard Evans, Director Corporate Finance

About eg solutions plc

eg solutions plc develops and sells real-time Operations MI (management information) software applications, together with associated implementation services and training. These solutions deliver improved efficiency, reduced costs and guaranteed ROI for clients. Its primary markets are in process based functions within the financial services sector in the UK and internationally. eg solutions plc is quoted on AIM: EGS.

  CHAIRMAN'S STATEMENT

Introduction

We are pleased to announce our results for the half year to 31 July 2008 which show a return to profitability. This has been achieved against an economic background which has been far from easy.

Following a very difficult trading period throughout 2007, shareholders will recall from previous announcements that the Directors outlined plans to not only strengthen the fundamentals of the business, but also to ensure that eg solutions was restored to profitable growth within a realistic timescale.  

Although we are delighted with our achievements in the year to date, we remain committed in our continued drive to achieve further, sustainable  improvements in performance.

Financials

The Company's financial performance for the first half of the current financial year demonstrated considerable recovery, resulting in a positive and profitable result overall. 

Initiatives to ensure that overheads remain under strict control have continued to be important and will remain valid for the foreseeable future.

Revenue in the six months ended 31 July 2008 was £2.27 million, an improvement of 10% on the comparable period in the prior year (H1, 2007: £2.07 million). Within that growth, there has been a sustained improvement in the quality of revenue. During the half year, the combination of software licences, software services and maintenance increased a further 9% to contribute 61% of revenue with the balance coming from implementation services. This compares with 56% for FY 2008 and only 36% in FY 2006.

Profit before tax was £0.05 million, compared with a loss of £0.64m in the comparable half year. Earnings per share were 0.4 pence, as opposed to a loss per share of 3.3 pence incurred in the comparable period last year.

The Company generated cash of £0.59 million during the half year (H1, 2007: cash outflow of £0.80 million) with cash balances increasing to £1.15m as at 31 July 2008 (£0.88 million as at 31 January 2008 and £1.31 million as at 31 July 2007). 

Dividend

The Board will not be declaring a dividend at the half year stage. 

Operating review - UK markets

Despite challenging market conditions in the Financial Services industry new contract wins were secured within the first trading month of the 2008 financial year. Nationwide Building Society commissioned a further implementation of our software within their specialist lending division. This was followed by success at Co-operative Financial Services, where we secured a major software services project to embed our software suite into an integrated solution that will automate the processing of inbound and outbound correspondence. Finally, a further new implementation was secured within the travel and tour operator payments teams of the Co-operative Travel Group. 

It is very pleasing to report that these contracts have progressed well, with good results being achieved for these clients.

These contract wins demonstrate the continuing interest in our solutions within our core markets. Going forward, we remain firmly focused on securing new business opportunities across the UK.

Operating review - international markets

We have maintained our objective to develop our business within specific new international markets in order to reduce revenue concentration on UK financial services.

South Africa has been a primary target market, both in terms of distribution and as an extension of our software development team. Since the operation was established in January 2007, we have secured five new business contracts within this country, with several more opportunities developing in our new business pipeline.

During the half year period, we announced a new contract win with a major life office in South Africa and since the half year end we have signed a new contract with South Africa's largest short-term insurer where there is the potential for up to 1,000 users of the Company's software. Both contracts have opportunities for further roll-outs in the future.

UK head office relocation

In June 2008, the Company relocated its UK head office to new accommodation located at Dunston Business Village in Stafford.  The cost of this move was kept to £55,000, which has been taken against the profit for the period under review.

Our new premises can accommodate our future growth requirements while also providing our clients with improved training facilities at our newly launched Training Academy.

People 

During the period, we were delighted to appoint Violetta Parylo as Finance Director and Company Secretary with effect from May 2008.

Violetta brings extensive experience in delivering strategic, financial and business value to the Company, having held a number of senior finance positions within both UK and international companies.

eg solutions is driven by a committed team of people, all of whom are dedicated to the Company's on-going success.  On behalf of the Board, I would like to take this opportunity to thank everyone for their continued hard work and commitment during the first half of the financial year. 

Current trading and outlook

Amidst the difficulties currently being experienced within the financial services sector as a whole, we continue to focus on delivering applications and services which, demonstrably, help our clients to reduce costs. It is our belief that such 'spend to save' projects will attract continued investment as the sector seeks to reduce its cost base.

Closed and contracted orders for the second half of the current financial year are 25% higher than at the same time in 2007 and current trading continues in line with management expectations.

Rodney Baker-Bates

Non-executive Chairman

23 September 2008

  Condensed Consolidated Income Statement 

for the six months ended 31 July 2008

	Unaudited six months ended 31 July 2008 £000	Unaudited  six months ended 31 July 2007 £000	Audited twelve months ended 31 January 2008 £000
Revenue	2,269	2,067	4,123
Cost of sales	(929)	(722)	(1,431)
Gross profit	1,340	1,345	2,692
Administrative expenses	(1,309)	(2,031)	(3,589)
Operating profit / (loss)	31	(686)	(897)
Finance income	22	48	82
Profit / (loss) before tax	53	(638)	(815)
Income tax credit	1	212	159
Profit / (loss) for the period	54	(426)	(656)
Profit / (loss) attributable to ordinary shareholders	54	(426)	(656)
Earnings / (loss) per share
basic	0.4p	(3.3p)	(5.0p)
fully diluted	0.4p	(3.3p)	(5.0p)

  

Condensed Consolidated Balance Sheet 

as at 31 July 2008

	Unaudited as at 31 July 2008 £000	Unaudited as at 31 July 2007 £000	Audited as at 31 January 2008 £000
Non current assets
Property, plant and equipment	90	147	117
Development assets	1,111	559	911
Deferred tax assets	-	291	-
Total non current assets	1,201	997	1,028
Current assets
Trade and other receivables	943	1,261	849
Current tax receivable	157	-	157
Cash and cash equivalents	1,151	1,309	878
Total current assets	2,251	2,570	1,884
Total assets	3,452	3,567	2,912
Equity
Issued capital	143	143	143
Share premium	2,910	2,910	2,910
Share based payment reserve	216	154	191
Own shares held	(1,000)	(1,000)	(1,000)
Retained earnings	(342)	(192)	(383)
Shareholders' funds	1,927	2,015	1,861
Non current liabilities
Deferred tax	85	163	82
Total non current liabilities	85	163	82
Current liabilities
Trade and other payables	589	717	774
Deferred revenue	851	672	195
Total current liabilities	1,440	1,389	969
Total liabilities	1,525	1,552	1,051
Total liabilities and equity	3,452	3,567	2,912

  Consolidated interim cash flow statement

for the six months ended 31 July 2008

	Unaudited six months ended 31 July 2008 £000	Unaudited six months ended 31 July 2007 £000	Audited twelve months ended 31 January 2008 £000
Operating activities
Operating profit / (loss) before tax	31	(686)	(897)
Adjustments
Depreciation of property plant and equipment	62	45	85
Amortisation of intangible assets	104	44	124
Share option charge	25	31	68
Exchange rate difference	(13)	(7)	10
Working capital adjustments
Increase in trade and other receivables	(94)	(741)	(329)
Increase / (decrease) in trade and other payables	475	511	(1)
Net cash generated/ (used in) operations	590	(803)	(940)
Investing activities
Purchase of property, plant and equipment	(35)	(60)	(70)
Intangible assets - internally developed	(304)	(307)	(716)
Interest received	22	48	82
Corporation tax	-	-	91
Net cash used in investing activities	(317)	(319)	(613)
Net increase/ (decrease) in cash and cash equivalents	273	(1,122)	(1,553)
Cash and cash equivalents at beginning of the period	878	2,431	2,431
Cash and cash equivalents at end of the period	1,151	1,309	878

  Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 July 2008

	Share capital	Share premium	Retained earnings	Own shares held	Share based payment reserve	Total
	£000	£000	£000	£000	£000	£000
At 1 February 2007	143	2,910	263	(1,000)	123	2,439
Total recognised income and expense	-	-	(656)	-	-	(656)
Share based payments	-	-	-	-	68	68
Foreign exchange difference	-	-	10	-	-	10
At 31 January 2008	143	2,910	(383)	(1,000)	191	1,861
At 1 February 2008	143	2,910	(383)	(1,000)	191	1,861
Total recognised income and expense	-	-	54	-	-	54
Share based payments	-	-	-	-	25	25
Foreign exchange difference	-	-	(13)	-	-	(13)
At 31 July 2008	143	2,910	(342)	(1,000)	216	1,927

This statement is unaudited.

  Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 31 July 2008

 

1 Basis of Preparation

The interim financial statements are prepared on the basis of the accounting policies set out in the Group accounts for the year ended 31 January 2008.

The interim financial statements are unaudited. The statements do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Full accounts of eg solutions plc for the year ended 31 January 2008, which were prepared in accordance with International Financial Reporting Standards (IFRS) have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under Section 237(2) of the Companies Act 1985.

The interim report for the six months ended 31 July 2008 was approved by the Board of Directors on 16 September 2008.

2 Segment Reporting: Business Segments

The Group has elected to segment its operations on the basis of 'geographical segmentation of operations'. The group has determined that this is the most appropriate segmental split to reflect the nature of the Group's operations. The group has two distinct companies operating in different geographical areas with different economic and political conditions and a different maturity of client and client requirements. These are:

EGUK - United Kingdom

EGSA - South Africa

Segment information about these companies is presented below.

	UK			South Africa			Group
	Unaudited six months ended	Unaudited six months ended	Audited twelve months ended	Unaudited six months ended	Unaudited six months ended	Audited twelve months ended	Unaudited six months ended	Unaudited six months ended	Audited twelve month ended
	31 July 2008	31 July 2007	31 January 2008	31 July 2008	31 July 2007	31 January 2008	31 July 2008	31 July 2007	31 January 2008
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Revenue
External revenue	2,191	1,939	3,775	78	128	348	2,269	2,067	4,123
Inter-segment revenue	-	-	300	-		125	-	-	425
Total revenue	2,191	1,939	4,075	78	128	473	2,269	2,067	4,548
Segment result before items listed below	1,302	1,233	2,657	38	112	35	1,340	1,345	2,692
Administrative expenses							(1,309)	(2,031)	(3,589)
Operating profit							31	(686)	(897)
Finance income							22	48	82
Profit before tax							53	(638)	(815)
Income tax credit / (expense)							1	212	159
Profit after tax							54	(426)	(656)
Segment net assets / liabilities	1,938	1,839	1,822	-11	176	39	1,927	2,015	1,861

Based on risks and returns the directors consider that the secondary reporting format is by business segment. The directors consider that there is only one business segment being IT and software support services. Therefore the disclosures for the secondary segment have already been given in these financial statements.

3 Taxation

	Unaudited six months to 31 July 2008 £000	Unaudited six months to 31 July 2007 £000	Audited twelve months to 31 January 2008 £000
Current tax:
Domestic	-	-	(156)
Adjustments in respect of prior periods	-	8	7
	-	8	(149)
Deferred tax:		-
Current tax	(1)	(220)	16
Adjustments in respect of prior periods		-	(26)
Tax attributable to the Group and its subsidiaries	(1)	(212)	(159)

Domestic income tax is calculated at 28% (31/07/07 and 31/01/08: 30%) of the estimated assessable profit for the year.

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

	Unaudited six months to 31 July 2008 £000	Unaudited six months to 31 July 2007 £000	Audited twelve months to 31 January 2008 £000
The charge for the period can be reconciled to the profit per the income statement as follows:
Profit / (loss) before tax	53	(638)	(815)
Tax at the domestic income tax rate 28% (31/07/07 and 31/01/08: 30%)	15	(191)	(245)
Tax effects of expenses that are not deductible in determining taxable profit	(32)	23	67
Other timing differences	20	(288)	(3)
Research and development	(56)	(39)	(98)
Tax losses carried forward	52	286	-
Marginal rate of tax	-	-	137
Prior year adjustments	-	(3)	(19)
Effect of different tax rates of subsidiaries operating in other jurisdictions	-	-	2
Tax credit	(1)	(212)	(159)
Effective tax rate for the period	2%	33%	20%

 

4 Dividends

In respect of the current year, the directors propose that no interim dividend will be paid to shareholders.

  5  Earnings / (loss) per Share

From continuing operations
	Unaudited six months to  31 July 2008 £000	Unaudited six months to 31 July 2007 £000	Audited twelve months to 31 January 2008 £000
Basic	0.4p	(3.3p)	(5.0p)
Diluted	0.4p	(3.3p)	(5.0p)

EPS has been calculated using the following methodology:

Profit / (Loss) after Tax

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Allotted issued and fully paid share less shares owned by the Employee Benefit Trust.

Diluted EPS has been calculated using the following methodology:

Profit / (Loss) after Tax

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Allotted issued and fully paid shares less shares owned by the Employee Benefit Trust that are not currently allocated as options

6 Development Assets Consolidated

	Development costs £000
Cost
At 1 February 2007	358
Acquisitions - internally developed	716
At 1 February 2008	1,074
Acquisitions - internally developed	304
At 31 July 2008	1,378
Amortisation and impairment
At 1 February 2007	39
Amortisation	124
At 1 February 2008	163
Amortisation for the year	104
At 31 July 2008	267
Carrying amount
At 31 July 2008	1,111
At 31 January 2008	911

Amortisation of £104k (31/07/07: £35k) has been charged to costs of sales.

7 Related Party Transactions

Trading transactions

During the year, group companies entered into the following transactions, for the purchase of goods and services, with related parties who are not members of the Group.

	Unaudited six months to 31 July 2008 £000	Unaudited six months to 31 July 2007 £000	Audited twelve months to 31 January 2008 £000
Related parties	11	2	15

The above value relates to a single party related to the Group due to the owner/manager of the business being a close family member (as defined under IAS24) of the Chief Executive of the Group. 

Other Debtors include £24k (31/01/08: £24K) due from E A Gooch. The maximum amount outstanding during the period was £24k (31/01/08: £34k).

The Group purchased the associated services under its normal terms of trade and payment was made under normal trading arrangements.

ENDIR UOUNRWRRKUAR

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Related Shares:

eg Solutions PLC