Final Results
Diagonal PLC
09 February 2004
FOR IMMEDIATE RELEASE 9 February 2004
DIAGONAL Plc
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE 52 WEEKS ENDED 28 NOVEMBER 2003
AND ACQUISITION OF EGILITY SOLUTIONS
Financial key points:
2003 2002
Turnover £56.3m £63.6m
Adjusted profit before tax* £2.4m £5.8m
Exceptional costs £2.2m -
FRS3 loss before tax (£2.8m) (£2.3m)
Adjusted basic and diluted earnings per share* 1.77p 4.49p
Final dividend per share 1.20p 1.20p
Full year dividends per share 1.90p 1.80p
Cash £12.3m £14.4m
*Before exceptional costs and goodwill amortisation
Operational key points:
• Results reflect difficult sector background and company-specific issues.
• New management team now in place.
• Vigorous corrective action during Q4 has cut costs and is revitalising
new business development.
• Acquisition announced today of Egility Solutions, a retail sector
consulting solutions specialist, for up to £2.5m.
• Group strategy has been reviewed. Current group constituents fit well
with forward plans for development.
On outlook, Chairman, Mark Samuels stated:
'The Board acknowledges that the Group's recent performance has been
disappointing and that much remains to be done. Nevertheless, Diagonal
continues to be extremely well regarded within its markets and is financially
strong.
'Recent evidence points towards some recovery in corporate investment in IT
solutions. Many of the projects which were deferred last summer are beginning
to come back on track and we expect to see the benefits of these improvements,
although not until the second half of the year. With a continuation of the
improvement in the performance of Diagonal Security, overall we are confident
that we will move forward during the current year.'
Enquiries:
Diagonal: Malcolm Gloak, Chairman Designate Today: 07976-439651; thereafter on 01428-653697
Colin Burnside, Chief Executive Today: 07768-722159; thereafter on 01252-733711
Martin Andrews, Group Finance Director Today: 07730-517699; thereafter on 01252-733711
Bankside: Steve Liebmann 07802-888159 or 020-7444-4163
Note to Editors
Our business is Information Technology and consulting and services. Working in
partnership with SAP and Microsoft in particular we help our clients deliver
Continuing Business Improvement through the application of world-leading
technology.
CHAIRMAN'S STATEMENT
Introduction
The past year has been both difficult and eventful for Diagonal. Against a
background of sector conditions which were demanding for the third year in
succession, company-specific issues also adversely affected performance.
Vigorous corrective action was taken during our fourth quarter and strategy has
been reviewed. The benefits of these actions are beginning to come through in
terms of improving performance. The Group now has a clearer sense of direction
and a much improved management culture.
Today we have announced the acquisition of Egility Solutions Limited ('Egility
'), a consultancy business specialising in the retail sector, for a maximum
consideration of £2.5 million. Further details are given in the Finance
Director's Report.
Results, finance and dividend
Revenue for the 52 weeks to 28 November 2003 was £56.3 million (2002: £63.6
million) reflecting the difficult market conditions and the effect of a number
of contract deferrals within the Diagonal Consulting division as described in
our trading statement issued in early September. Within this total, Partners
for Change, who were acquired in the period, contributed revenue of £5.3
million.
Profit before tax, goodwill amortisation and exceptional items was in line with
revised market expectations at £2.4 million (2002: £5.8 million). Goodwill
amortisation was £3.0 million (2002: £8.0 million including an impairment charge
of £5.0 million). Exceptional costs of £2.2 million (2002: £nil) were incurred
in the year. Further details are included below in the Finance Director's
Report. The loss before tax was £2.8 million (2002: loss of £2.3 million).
The balance sheet continues to be very strong with cash of £12.3 million (2002:
£14.4 million).
A maintained final dividend of 1.2p will be proposed, increasing the total
dividend for the year to 1.9p (2002: 1.8p).
Board and management
In order to address both the challenges of 2003 and to strengthen the business
going forward, there have been widespread changes to the Board and to senior
management within the operating companies. In effect, we have started the
current year with a substantially new executive team.
Colin Burnside was appointed Chief Executive in July 2003 after Graham Creswick
(Chief Executive) and Steve Fleming (Finance Director) left the Group. We were
pleased to welcome Martin Andrews as Finance Director in mid-September. During
the latter part of the year, Chris Chittock assumed a Group business development
role and new senior management appointments have been made at Diagonal
Consulting, Diagonal Security and EAI Consulting.
With a new management team in place and the business now beginning to move
forward again, I have decided to retire from the Board at the forthcoming AGM
scheduled for 25 March 2004. Malcolm Gloak was appointed a non-executive
Director in June 2003 and it is intended that he becomes Chairman at the AGM.
Accordingly, Malcolm becomes Chairman Designate with immediate effect.
Strategy
A thorough review of Diagonal's medium-term strategy has been undertaken in
recent months. We are confident that the current constituents of the Group fit
well with our plans for development. We believe that technology is the primary
enabler of business change and that the solutions we can implement will continue
to meet successfully the stringent demands of large organisations. The need to
maintain the security of corporate information is an increasing imperative. As
the focus of the Secure Networks business moves away from a dependency on
hardware sales to a higher consultancy and solutions mix, we believe it fits
within our overall strategy. Therefore, in order to reinforce its closer
integration into the Group, it has been re-branded as Diagonal Security.
A key aspect of our drive towards a new 'inclusive' management culture is to
encourage all operating companies to work together more closely to play to each
business's strength. We are already seeing some tangible success in this
regard.
Outlook
The Board acknowledges that the Group's recent performance has been
disappointing and that much remains to be done. Nevertheless, Diagonal
continues to be extremely well regarded within its markets and is financially
strong.
Recent evidence points towards some recovery in corporate investment in IT
solutions. Many of the projects which were deferred last summer are beginning
to come back on track and we expect to see the benefits of these improvements,
although not until the second half of the year. With a continuation of the
improvement in the performance of Diagonal Security, overall we are confident
that we will move forward during the current year.
Mark Samuels 9 February 2004
Chairman
CHIEF EXECUTIVE'S STATEMENT
Overview
Trading conditions were difficult throughout the period as budgets for capital
investment, and spending on technology in particular, were severely constrained
by our clients and prospects.
In addition, we faced a number of company-specific issues:
• members of the previous management team were involved in an aborted
MBO for parts of the Group before leaving in July;
• influenced by the distractions of the MBO negotiations, the Security
business suffered a material decline in revenues in the middle part of the
year and became loss-making; and
• Diagonal Consulting suffered an unprecedented series of project deferrals
as clients responded to short term pressures to reduce discretionary
capital spend.
These events led to a number of key changes in management and necessitated the
trading statement in September 2003.
The following actions have been implemented since July 2003:
• a thorough review of the Group's structure and its constituent
divisions has been performed;
• central office overheads were reduced to bring them into line with
reduced Group revenues;
• new management was installed at Diagonal Security which has since
returned to growth and profit;
• a new Finance Director was appointed from outside the Group; and
• a restructuring was undertaken within Diagonal Consulting which led to
further cost reductions and a tighter control of the sales process.
Group Strategy
The new management team has formulated clearly what Diagonal's strategy should
be and how that should be translated into business development plans for each of
the operating divisions. The common thread that we intend to build on is that
we work with clients to protect their existing technology investments and to
deliver business benefits through the further use of technology. Our policy is
to work only with market leading technology vendors.
We are now satisfied that each constituent of the Group has strengths well
suited to the current marketplace:
• Diagonal Consulting is well established with a 'blue chip' client base and
the outlook for corporate investment in major IT projects now appears
to be improving;
• Partners for Change provides the high level change management
consultancy skills associated with large corporate and/or IT projects;
• Diagonal Security serves one of the fastest growing segments of the market
where network and data security have assumed the highest of priorities;
and
• EAI Consulting has products, alliances and technologies which will help the
Group move more strongly into local and central government markets.
A key task for management is to achieve closer cooperation between Group
companies, with each playing to their strengths and contributing to the
generation of new business. A good example is Partners for Change, a change
management consultancy acquired by Diagonal approximately a year ago. The need
to deliver solutions and benefits - rather than implementations - is becoming a
driving force in winning new business. Partners for Change's skills represent a
real differentiator and have contributed towards the winning of several new
clients in recent weeks.
The acquisition of Egility consolidates an earlier alliance and strengthens
Diagonal's skills within the retail sector, one of the strategically important
markets for Diagonal Consulting's growth plans.
Egility is a specialist IT retail consultancy whose consultants have a detailed
understanding of retail best practice and extensive knowledge of the SAP
solution, together with a thorough understanding of store systems, ensuring that
their retail clients gain advantages from their new investment as quickly as
possible with the minimum of cost.
Their consultants have been involved in the majority of UK retail
implementations including Woolworths, Vision Express, Harrods, French
Connection, Aer Rianta, Boots, Superquinn and Direct Wines.
We recognise that all of our clients face continuing challenges of expanding
their business and reducing costs, with technology often the primary enabler of
those changes. Our mission is to work with them to continuously improve their
business by the innovative use of technology.
Alliances
The changing nature of our marketplace highlights the need to open new routes to
market. Our entry into new sectors and geographies will entail us working in
partnership with other organisations to accelerate our progress and mitigate the
risks. I have asked Chris Chittock to undertake a Group role to develop those
new alliances, in addition to her role of managing major client relationships.
We intend to use our experience and track record, gained from working with
partners in the SAP marketplace, to the benefit of the Group as a whole.
Management Changes
Following Chris' move to a group role, Graham Frazer has been appointed Managing
Director of Diagonal Consulting. Graham joined as Sales Director from Accenture
in 1999 and has been at the forefront of many of our sales successes and major
client relationships. I am also pleased to announce that Guy Hodges has been
promoted to Managing Director of EAI Consulting and Paul Murray to Managing
Director of Diagonal Security. Guy joined the Group through the acquisition of
MFT Computer Systems in 1999 and has been Sales Director for EAI Consulting for
the past four years. Paul joined the Group from Hewlett-Packard in 2001, and
was previously Sales Manager for Diagonal Consulting. Janice Miller, as
Managing Director of Partners for Change, completes the Operating Board's
management team.
Diagonal Consulting
As the market leader in ERP solutions, SAP AG has recently reported improved
trading trends and its latest results show an increased market share against its
four largest competitors to 59% from 51% over the past 12 months.
Diagonal Consulting continues to enjoy the benefit of long term relationships
with major clients. As those clients have evolved from national ERP
implementations to global implementations, we expanded into North America and
South East Asia to enhance our services offering. These operations are
underpinned by long term support contracts but are also expanding locally.
We have extended our footprint in South East Asia with the opening of a new
office in Kuala Lumpur. We have already won indigenous contracts and are
continuing to recruit. The strategic logic is twofold. It gives us exposure to
the fastest growing region for SAP implementations and acts as a base for
recruiting lower cost but highly skilled consulting resource which can be
deployed to the benefit of clients worldwide. Our existing support
infrastructure already allows us to work remotely and round the clock,
irrespective of client location.
The need to expand into different market sectors led us to identify retail and
government as sectors with growth potential. Earlier last year we formed an
alliance with Egility, a specialist SAP consultancy servicing the retail sector.
This alliance, when combined with the change management capability from
Partners for Change, has enabled us to win significant retail implementation
business in the early part of the current financial year. The acquisition of
Egility is a logical next step in our strategy and we are pleased to welcome
them into the Diagonal Group.
To accelerate our entry into the public sector, we also formed our previously
announced alliance with Hedra, a long established public sector consultancy.
Our recruitment and contracting business suffered along with the rest of the
market but continues to provide us with valuable insight and data on trends
within the IT services arena.
Partners for Change
Prior to its acquisition Partners for Change had worked with Diagonal Consulting
on a number of projects. As part of the Group, Partners for Change retains its
branding and continues to provide high level consultancy services for large
businesses planning major periods of change.
This business is now bedding down as part of the Group and is working
increasingly with other divisions on new business development where the addition
of high level business change consultancy can be decisive.
Diagonal Security
Every major organisation is dependent to some extent on technology. Security of
corporate information and the ability to disseminate it to authorised employees
and stakeholders is a growing concern and is the key driver behind what is
becoming an important growth market.
Formerly known as Diagonal Secure Networks, this business was adversely affected
by the uncertainties created by the events over the summer period. Following
the appointment of new management the business has been re-branded as Diagonal
Security; the downward sales trend has been reversed and the division has
moved back into profit.
Diagonal Security has changed its focus from infrastructure to the enablement of
information security. Consulting and systems integration are now a key part of
our offering as internal and external threats become more complex and products
more diverse. This has brought the business closer to the Diagonal core values
of providing clients with solutions to their business issues.
EAI Consulting
We have been developing our Enterprise Application Integration skills and
working more closely with Microsoft, leading to the appointment of Diagonal as a
Gold Partner in 2002. We now see Microsoft taking a much more proactive role in
working with partners to deliver solutions to clients using their enterprise
platform technology. We envisage this division taking the lead in exploiting
the opportunities from Microsoft's '.net' technology.
We have developed and launched our 'Wisdom' electronic records management
product based on Microsoft technology for use in both commercial and government
sectors. Wisdom meets the UK Government's requirements for Electronic Records
Management and is one of only four software products accredited by the Public
Records Office. Development expenditure on Wisdom in 2003 was £163,000 and
further investment of some £300,000 is planned for the current year with the
next product release due in Q2 2004.
Looking Ahead
After the upheavals of the past year, Diagonal is starting to build for the
future. With an essentially new management team I believe we have both the
management and financial strength to take the business forward both organically
and by acquisition. With these changes I am confident that Diagonal has turned
the corner.
Colin Burnside 9 February 2004
Chief Executive
FINANCE DIRECTOR'S REPORT
Operating Results
The results for the 52 weeks ended 28 November 2003 reflected the circumstances
and trading environment already described in the Chairman's and Chief
Executive's Statements. In the autumn significant cost reductions were
undertaken, together with a management reorganisation which affected all
divisions; this contributed to total exceptional costs of £2.2 million (2002:
£nil).
Group turnover reduced to £56.3 million (2002: £63.6 million), with adjusted
profit before taxation (stated before exceptional items and goodwill) reducing
to £2.4 million (2002: £5.8 million).
Diagonal Consulting saw revenue decrease to £30.2 million (2002: £34.9 million),
with operating profits (all stated in this report as before exceptional costs,
goodwill and head office apportioned overheads unless stated otherwise) of £3.3
million (2002: £5.4 million). The adjusted operating margin of 11.0% (2002:
15.5%) reflects primarily a reduction in utilisation levels, particularly in the
summer and autumn periods, although there was downward pressure on fee rates.
The headcount reductions in the period will enhance utilisation as we progress
through 2004.
Partners for Change, acquired in February 2003, for a net cash consideration of
£1.7 million, contributed revenues of £5.3 million and an adjusted operating
profit of £37,000. These results, in the difficult market conditions of 2003,
do not reflect the benefit of having change management specialists who can
assist in winning new client contracts across all of the Group's activities. As
market conditions improve and IT spending resumes, these skills are expected to
contribute to the Group's ability to differentiate itself. Partners for Change
has already contributed to us winning several new clients early in 2004.
The Enterprise Application Integration business had reduced revenues of £4.7
million (2002: £5.8 million) but did report an improved adjusted operating
profit of £0.8 million (2002: £0.6 million). These results reflect the cost
reductions implemented last year, the operational quality of the business
(reflected in its Microsoft Gold Partner status) and its revenues derived from
local and central government, where IT spend has been more resilient than in the
private sector. The accredited Wisdom product developed internally (£163,000 of
direct development costs incurred in the year have now been written off in the
second half) is expected to underpin the division's public sector software and
services earnings.
The Diagonal Security division (re-branded as such at the end of the year) was
affected adversely over the summer period with revenues for the period falling
to £11.1 million (2002: £15.4 million) and adjusted operating profits falling to
£0.2 million (2002: £2.1 million). The results for the last quarter of the
period are encouraging.
Central head office costs of £2.4 million (2002: £3.1 million) were incurred.
This reduction reflects the elimination of certain group roles within the
redundancy and reorganisation programme undertaken in the summer.
Exceptional Items
Exceptional costs of £2.2 million have been incurred in the year. £1.2 million
relates to the headcount reduction and management reorganisation (including
costs associated with the termination of service agreements of former
directors), and £0.3 million to additional costs associated with the attempted
MBO. Finally, a provision of £0.7 million has been made, in full, against
amounts still receivable from a client (including anticipated legal costs to
pursue payment from them) who has alleged breach of contract and is now
requesting compensation of a total of £1.9 million in respect of a project
undertaken by Diagonal in 2002 and early 2003. Notice of claim was received
originally in February 2003 and details were provided in the contingent
liability note to the 2002 financial statements sent to shareholders in March
2003. As the debt from this client is now over one year old a provision has
been made. However, we will continue to defend this allegation (and the
collection of amounts outstanding) vigorously. No provision has been made for
additional compensation claimed as we continue to believe, and are advised that,
their claim is without merit.
Earnings Per Share
Adjusted basic and diluted earnings per share (excluding exceptional items and
goodwill) has fallen from 4.49p (as restated) to 1.77p. Basic and diluted loss
per share was 3.42p (2002: loss of 4.59p (as restated)). EPS comparatives have
been restated to exclude shares held within the Employee Benefit Trust from the
weighted average number of shares in issue during the period as is recommended
by FRS 14.
Diluted EPS is calculated by adjusting the weighted average number of shares on
the assumption of conversion of all dilutive potential ordinary shares. In 2003
and 2002 there were no dilutive potential ordinary shares.
Dividends
The Board has proposed a final dividend of 1.20p per ordinary share (2002:
1.20p) bringing the total for the year to 1.90p per ordinary share (2002:
1.80p). If approved, the dividend will be paid on 2 April 2004 to shareholders
on the register on 20 February 2004.
Treasury and Cash Flows
At 28 November 2003 the Group had cash of £12.3 million (2002: £14.4 million).
Cash inflow from operating activities, after the exceptional costs referred to
above, was £3.2 million (2002: £8.2 million). Net cash of £1.7 million was used
to acquire Partners for Change, being £2.5 million of cash consideration offset
by £0.8 million of cash acquired within the business at completion. Cash of
£1.2 million paid corporation taxes, £1.7 million was paid to shareholders in
the year in the form of dividends and £0.9 million was spent on capital
expenditure, primarily IT related equipment, a demonstration and marketing suite
and an internal CRM system.
At the balance sheet date the number of days of annual sales, represented by
trade debtors, were 69 (2002: 76) again reflecting the continued improvement in
working capital management.
Tax
The Group's tax charge, based on profits before tax and amortisation of goodwill
(and impairment in 2002), was £0.2 million (2002: £1.8 million). The effective
rate of taxation that this charge represents differs from the standard rate of
UK corporation tax due to the disallowance of certain costs. Short term timing
differences are provided in full.
ESOP Shares - Early Adoption of UITF Abstract 38
The UITF has published Abstract 38 'Accounting for ESOP Trusts' which supersedes
Abstract 13 and amends Abstract 17. It is effective for periods ending on or
after 22 June 2004, but early adoption is encouraged and we have adopted it in
the preparation of these financial statements. The Abstract requires own shares
held through an ESOP trust to be deducted in arriving at shareholders' funds and
recommends the creation of a separate negative reserve which we have described
as 'ESOP Reserve' in the notes to the accounts. The Abstract requires this
change to be retrospective and therefore comparatives have been restated. The
effect of this has been to reduce net assets as at 29 November 2002 by £1.4
million.
Acquisition of Egility Solutions Limited
We have announced today the acquisition of 100% of the issued share capital of
Egility Solutions Limited ('Egility') for a maximum consideration of £2.5
million, including a potential earn out of £0.5 million. The initial
consideration of £2.0 million has been satisfied by the issue of 1,921,230 new
ordinary shares in Diagonal Plc and by the payment of £857,000 in cash and
£143,000 in guaranteed Loan Notes. The earn-out is potentially payable over the
next twelve months dependent on revenue related targets in the retail sector
being attained and will be satisfied 65.58% in Loan Notes (which will not be
guaranteed) and the balance in cash.
The Loan Notes are redeemable between one and six years from the date of issue
and carry an interest coupon of bank base rate less 0.25%.
For the year ended 30 June 2003, being the latest period for which audited
accounts have been prepared, Egility had revenues of £1.2 million and both
profit before taxation and net assets of £0.2 million.
The benefits which are expected to accrue to the Group as a result of the
transaction are described in the Chief Executive's Statement.
Martin Andrews 9 February 2004
Finance Director
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE 52 WEEKS ENDED 28 NOVEMBER 2003
52 weeks ended 28 November 2003 52 Weeks
Before Goodwill & Total Ended
goodwill & exceptional £'000 29
exceptional items November
items (Note 2) 2002
£'000 £'000 £'000
Turnover
Continuing operations 50,969 - 50,969 63,618
Acquisitions 5,343 - 5,343 -
56,312 - 56,312 63,618
Cost of sales (39,334) - (39,334) (43,594)
Gross profit 16,978 - 16,978 20,024
Administrative expenses
Amounts written off goodwill - (3,036) (3,036) (8,027)
Other administrative expenses (14,995) (2,146) (17,141) (14,572)
Total administrative expenses (14,995) (5,182) (20,177) (22,599)
Operating profit / (loss)
Continuing operations 1,946 (5,182) (3,236) (2,575)
Acquisitions 37 - 37 -
1,983 (5,182) (3,199) (2,575)
Net interest receivable 384 - 384 321
Profit/(loss) on ordinary activities before 2,367 (5,182) (2,815) (2,254)
taxation
Tax on profit/(loss) on ordinary activities (798) 584 (214) (1,807)
Profit/(loss) on ordinary activities after 1,569 (4,598) (3,029) (4,061)
taxation
Equity dividends (1,678) - (1,678) (1,591)
Retained loss for the financial period (109) (4,598) (4,707) (5,652)
Pence Pence Pence
(restated)
Basic and diluted loss per ordinary share (3.42) (4.59)
Adjusted basic and diluted profit per ordinary 1.77 4.49
share
Equity dividend per ordinary share 1.90 1.80
CONSOLIDATED BALANCE SHEET
AS AT 28 NOVEMBER 2003
28 November 2003 29 November 2002
(restated) (restated)
£'000 £'000 £'000 £'000
Fixed Assets
Intangible assets 18,128 18,264
Tangible assets 2,349 2,485
20,477 20,749
Current Assets
Debtors 14,509 17,762
Cash at bank and in hand 12,345 14,417
26,854 32,179
Creditors - amounts falling due within one year (11,583) (12,291)
Net current assets 15,271 19,888
Total assets less current liabilities 35,748 40,637
Creditors - amounts falling due after more than one
year - (98)
Net assets 35,748 40,539
Capital and Reserves
Called up Share Capital 8,940 8,940
Share Premium Account 29,496 29,496
Other Reserves (804) (804)
Profit and Loss Account (1,884) 2,907
Equity shareholders' funds 35,748 40,539
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
FOR THE 52 WEEKS ENDED 28 NOVEMBER 2003
52 weeks 52 weeks 52 weeks
ended ended ended
28 29 29
November November November
2003 2002 2002
£'000 (restated) (restated)
£'000 £'000
Loss for the financial period (3,029) (4,061)
Currency translation difference on foreign currency net investments (84) -
Equity dividends (1,678) (1,591)
(4,791) (5,652)
Issues of shares - 963
Net reduction in shareholders' funds (4,791) (4,689)
Opening equity shareholders' funds 40,539 46,632
Reclassification of ESOP shares (Note 4) - (1,404)
Adjusted opening equity shareholders' funds - 45,228
Closing equity shareholders' funds 35,748 40,539
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE 52 WEEKS ENDED 28 NOVEMBER 2003
52 weeks 52 weeks
ended ended
28 29
November November
2003 2002
£'000 £'000
Loss for the financial period (3,029) (4,061)
Currency translation differences on foreign currency net investments (84) -
Total recognised losses relating to the period (3,113) (4,061)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE 52 WEEKS ENDED 28 NOVEMBER 2003
Note 52 weeks 52 weeks
ended ended
28 29
November November
2003 2002
£'000 £'000
Net cash inflow from operating activities a 3,171 8,234
Returns on investments and servicing of finance b 384 321
Taxation paid (1,244) (1,877)
Capital expenditure and financial investment c (855) (948)
Acquisitions and disposals d (1,694) (229)
Equity dividends paid (1,678) (1,587)
Cash (outflow) / inflow before financing (1,916) 3,914
Financing
Issues of ordinary shares - 436
Net repayment in borrowings e (78) (88)
(78) 348
(Decrease) / increase in net cash in the period (1,994) 4,262
NOTES TO CONSOLIDATED CASH FLOW STATEMENT
52 weeks 52 weeks
ended ended
28 29
November November
2003 2002
£'000 £'000
a Reconciliation of operating loss to net cash inflow from operating
activities
Operating loss (3,199) (2,575)
Amortisation and impairment of goodwill 3,036 8,027
Depreciation 1,027 1,010
(Profit) / loss on sales of tangible fixed assets (1) 9
Decrease in debtors 6,593 4,568
Decrease in creditors (4,285) (2,805)
Net cash inflow from operating activities 3,171 8,234
b Returns on investments and servicing of finance
Interest received 415 349
Interest element of finance lease payments (31) (28)
Net cash inflow from returns on investments and servicing of finance 384 321
c Capital expenditure and financial investment
Purchase of tangible fixed assets (899) (1,023)
Proceeds of disposals of fixed assets 44 75
Net cash outflow from capital expenditure and financial investment (855) (948)
d Acquisitions and disposals
Purchase of subsidiary undertaking (2,494) (229)
Net cash acquired with subsidiary 800 -
Net cash outflow from acquisitions and disposals (1,694) (229)
e Reconciliation of net cash flow to movement in net funds
Opening balances
Cash 14,417 10,155
Finance leases (174) (214)
Net funds 14,243 9,941
Movement in period
(Decrease) / increase in cash in the period (2,794) 4,262
Net cash acquired with subsidiary 800 -
Net repayments in lease financing 78 88
Leases acquired (non cash) - (48)
Translation difference (78) -
Changes in net funds resulting from cash flows (1,994) 4,302
Closing balances
Cash 12,345 14,417
Finance leases (96) (174)
Net funds 12,249 14,243
f Movement in period At 29 Cash Non cash At 28
November flows changes November
2002 £'000 £'000 2003
£'000 £'000
Cash 14,417 (1,994) (78) 12,345
Finance leases (174) 78 - (96)
Net funds 14,243 (1,916) (78) 12,249
g Partners for Change, acquired during the year, had a net cash outflow from
operating activities of £440,000 for the period from acquisition, received
£13,000 in respect of net returns on investment and servicing of finance and
received a refund of £5,000 of corporate taxation.
h The operating cash flows include outflows of £1.4 million in relation to
exceptional items as described in Note 2.
NOTES TO THE AUDITED ACCOUNTS
1. Segmental Analysis
Analysis by class of business by turnover, operating profit/(loss) and net
assets is stated below:
Turnover Operating profit/(loss) Net assets
52 weeks 52 weeks 52 weeks 52 weeks As at 29
ended 28 ended 29 ended 28 ended 29 As at 28 November
November November November November November (restated)
2003 2002 2003 2002 2003 2002
£'000 £'000 £'000 £'000 £'000 £'000
Class of business
Consulting 30,162 34,927 3,332 5,429 5,086 7,567
Recruitment 4,973 7,452 - 378 460 599
Partners for Change 5,343 - 37 - 1,266 -
EAI Consulting 4,742 5,821 785 628 174 (11)
Security 11,092 15,418 186 2,144 (57) 103
Central costs (2,357) (3,127)
Centrally held cash, 28,819 32,281
other assets &
goodwill
56,312 63,618 1,983 5,452 35,748 40,539
Exceptional costs (2,146) -
Goodwill amortisation (3,036) (8,027)
& impairment
Operating loss (3,199) (2,575)
An analysis of turnover by geographical destination is given below:
52 weeks 52 weeks
ended 28 ended 29
November November
2003 2002
£'000 £'000
UK 49,077 53,569
Other European 1,117 3,684
countries
US 5,413 5,820
Rest of World 705 545
56,312 63,618
2. Exceptional Items
52 weeks 52 weeks
ended ended
28 29
November November
2003 2002
An analysis of exceptional items is as follows: £'000 £'000
Headcount reduction and reorganisation, including termination of service 1,186 -
agreements of former directors
Further costs associated with attempted MBO 290 -
Provision against outstanding debt plus related legal costs 670 -
2,146 -
3. (Loss) / Earnings Per Share
Earnings per share have been computed in accordance with Financial Reporting
Standard 14 'Earnings per Share'.
Basic earnings per share is calculated by dividing the loss or profit on
ordinary activities after taxation by the weighted average number of Ordinary
shares, to be issued and in issue, during the period. Diluted earnings per
share are calculated by adjusting the weighted average number of shares on the
assumption of conversion of all dilutive potential Ordinary shares. In 2003 and
2002 there were no dilutive potential Ordinary shares.
A reconciliation of the earnings and weighted average number of shares used in
the calculation is set out below:
52 weeks 52 weeks
ended ended
28 29
November November
2003 2002
£'000 £'000
Loss on ordinary activities after taxation (3,029) (4,061)
Amounts written off goodwill 3,036 8,027
Exceptional items after taxation 1,562
Adjusted profit on ordinary activities after taxation 1,569 3,966
No. No.
(restated)
Weighted average number of shares 89,401,341 89,049,702
Exclude ESOP shares as per FRS14 (804,420) (639,626)
Weighted average number of shares for basic and diluted EPS 88,596,921 88,410,076
Pence Pence
(restated)
Basic and diluted EPS
Unadjusted (3.42) (4.59)
Exceptional costs 1.76
Goodwill 3.43 9.08
Adjusted 1.77 4.49
Comparatives have been restated to exclude the shares held within the ESOP trust
from the calculation of both basic, diluted and adjusted EPS.
4. ESOP Shares - Early Adoption of UITF Abstract 38
The UITF has published Abstract 38 'Accounting for ESOP Trusts' which supersedes
Abstract 13 and amends Abstract 17. It is effective for periods ending on or
after 22 June 2004, but early adoption is encouraged and we have adopted it in
the preparation of these financial statements. The Abstract requires own shares
held through an ESOP trust to be deducted in arriving at shareholders' funds and
recommends the creation of a separate negative reserve which we have described
as 'ESOP Reserve' in the notes to the accounts. The Abstract requires this
change to be retrospective and therefore comparatives have been restated.
5. Financial Information
The financial information set out above does not constitute the company's
statutory accounts for the periods ended 28 November 2003 or 29 November 2002,
but is derived from those accounts. Statutory accounts for 2002 have been
delivered to the Registrar of Companies and those for 2003 will be delivered
following the company's annual general meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain statements
under s237(2) or (3) Companies Act 1985. This preliminary announcement was
approved by the Board of Directors on 9 February 2004.
6. Subsequent Events
Subsequent to the balance sheet date and as disclosed in the Finance Director's
Report, we have announced today the acquisition of 100% of the issued share
capital of Egility Solutions Limited for a maximum consideration of £2.5
million, including a potential earn out of £0.5 million.
This information is provided by RNS
The company news service from the London Stock Exchange
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