Final Results

Focus Solutions Group PLC 12 June 2003 12 June 2003 Preliminary Announcement Focus Solutions Group plc Focus Solutions announces preliminary results (for the year ended 31st March 2003) Highlights â€¢ Turnover increased by 30% to Â£6.6 million (2002: Â£5.1 million) â€¢ Operating loss* decreased by 13% to Â£2.5 million (2002: Â£2.9 million) and reduced in the second half to Â£0.7 million (1H 2003: Â£1.8 million) â€¢ Operating loss* for continuing UK operations decreased by 50% to Â£1.4 million (2002: Â£2.9 million) and reduced to Â£0.1 million in the second half. (1H 2003: Â£1.3 million) â€¢ Operating loss of Â£3.0 million (2002: Â£2.9 million) â€¢ Cash and money market deposits of Â£1.7 million (2002: Â£4.6 million); debt free â€¢ Recurring revenue increased to Â£1.2 million, 17% of turnover (2002: 11%) â€¢ Major contracts wins during the year include: - Â£960,000: one of the top 5 insurance companies** - Â£400,000: Misys IFA Services - Â£250,000: Zurich Advice Network (ZAN) *before reorganisation costs, amortisation of goodwill and tax. (see consolidated profit & loss account for reconciliation) ** contract prohibits publicity Announcing today (subject to separate announcement) New Finance Director appointed John Streets, Chief Executive, said: "Last year market conditions continued to be challenging but we are pleased to announce that the Group grew revenues by 30 per cent. Cost cutting measures enabled us to significantly reduce operating losses in the UK and further cost benefits are anticipated in this financial year. The sale of 51% of the US operation, which took place in March 2003, will allow the Group to target its resources on its core business and reduce its cash exposure. Our solutions and technology are now delivering significant benefits to an expanding blue chip customer base. With a continued focus on costs, this positions us well to further improve financial performance this year." Enquiries: Focus Solutions Group plc 01926 468300 John Streets Martin Clements Citigate Dewe Rogerson 020 7638 9571 Chris Barrie Sara Batchelor Chairman's Statement Business Review In my first annual report as Chairman, I am pleased to report that the Group has made progress during tough trading conditions in our markets. In an environment of low top line growth, revenue growth at Focus has been strong with turnover up 30%. Actions taken earlier in the year reduced the Group's operating losses before reorganisation costs and amortisation of goodwill from Â£1.7 million in the first half of the year to Â£0.8 million in the second half, despite the difficulties experienced in our former US subsidiary, Focus Solutions Inc (FSI). Operating losses in the continuing UK operations were halved to Â£1.4 million (2002: Â£2.9 million) and reduced to Â£0.1 million in the second half of the year. (H1 2002: Â£1.3 million). The Group has continued to expand its market share in the UK life insurance market. Whilst the majority of turnover came from our existing customer base, which includes seven of the top ten life and pensions companies, we won some significant new customers during the year including Prudential, Paymentshield, and Misys IFA Services. Good progress was made on developing our recurring revenue which includes annual licence fees, support and maintenance and volume related revenue. This increased to 17% of turnover (Â£1.2 million), compared to 11% (Â£0.6 million) last year. Market conditions in the US proved to be particularly tough. Whilst opportunities were identified and developed, these did not generate any revenue during the year. The Board believed that its US subsidiary, acquired in April 2002, would continue to need significant cash investment and so took the decision to sell 51% of its stake to the management of FSI for a nominal consideration. The sale was completed in March 2003 and the Group will no longer be responsible for any costs in relation to FSI. By retaining a 49% investment in FSI, the Group will ensure that shareholders continue to benefit from any future success of the US Group in the North American market. Financial Performance Turnover for the year ending 31st March 2003 was Â£6.6 million compared with Â£5.1 million in the previous financial year. Operating losses after reorganisation costs and amortisation of goodwill were Â£3.0 million, including a loss of Â£1.6 million from the Group's discontinued US operations. This compared to an operating loss of Â£2.9 million in 2002. Loss on ordinary activities before tax was Â£3.9 million (2002: Â£2.6 million), after Â£0.9 million loss on the disposal of the US operations. Losses after tax were Â£3.4 million, after a corporation tax credit of Â£0.4 million against the costs of investment in research and development for the two years ending March 2002. Results for continuing operations, (the UK business), show revenue in the second half increasing by 33% over the first half year, reflecting a traditional pattern of sales; in general, 40% of turnover usually occurs in the first half of the year and 60% in the second half, reflecting customer spending patterns. This revenue growth, combined with cost cutting measures taken at the half year, reduced operating losses for the continuing operations significantly. Operating loss before reorganisation costs and amortisation of goodwill was Â£1.4 million (2002: Â£2.9 million) and Â£0.1 million in the second half of this year compared to Â£1.3 million in the first half. Cash and money market deposits at 31st March 2003 were Â£1.7 million, compared with Â£2.2 million at 30th September 2002 and Â£4.6 million at the end of the last financial year, and the balance sheet is debt free. Loss per share for the year ending 31st March 2003 was 13.4p, compared with a loss of 10.3p for the year ending 31st March 2002. In view of the current losses the Directors are not recommending the payment of a dividend. People The Group has achieved substantial growth to date and during the year a number of changes to the Board were made to help take the Group forward to its next phase of growth. In December 2002, Richard Jephcott stepped down as Chairman to allow him to assist the Group in the strategic development of its software business. I took up the position of non-executive Chairman, following my appointment to the Board in July 2002 as Deputy Chairman. I would like to thank Richard for his valuable contribution to the development of the business since flotation. I look forward to using my international experience in the IT and financial services industries and my business network developed over 30 years with the Unisys Corporation, to help the Group achieve its strategy and create shareholder value. Lin Johnstone also joined the Board in July 2002 as a non-executive director bringing valuable expertise in the global exploitation of leading edge technology. In addition, Martin Clements has been appointed to the Board as Finance Director today, June 12th 2003. Sue Hele has stepped down as Finance Director but will continue to support the Group within the Finance team. As Focus enters the next phase of its development, the Group will benefit enormously from Martin's experience in developing high profile software companies both in the UK and internationally. I would like to extend my thanks to Sue for her commitment and contribution to the Group during the last two and half years. The strong growth of the Group's revenue from its existing customer base is testament to the reputation of our staff for both their technical expertise and responsiveness to customer requirements. To achieve these results in the current environment has required both flexibility and commitment from our staff for which I am extremely grateful. Outlook The need to reduce costs coupled with forthcoming changes in regulation will continue to drive insurance companies and others in the financial services industry towards electronic trading. However, customers are still reviewing expenditure carefully and the insurance market remains volatile. Consequently, we will continue to reduce costs and target resources on our core market to maintain the Group's improving financial performance in a challenging environment. The Group will continue to move towards delivering value for shareholders by strengthening its position as a leading provider of electronic trading solutions to the life and pensions industry and working to fully realise the potential of its software, goal: technology, in other market sectors. Chief Executive's Statement The Group has achieved both revenue growth and reduced costs in an environment where delays and revisions to orders and contracts were a common occurrence. Our strategy is to design, deliver and implement e-trading solutions for the financial services markets, built using goal:technology, our XML toolkit, and to exploit the potential of goal:technology in other markets through partners. This strategy has delivered results with increased revenue from both new and existing customers in the UK life and pensions market. Underpinning our solutions revenue is a growing recurring revenue stream. At Â£1.2 million, this now represents 17% of our turnover, as against 11% last year. During the year we won several large licence contracts including our first order worth approximately Â£1 million over four years. Software that incorporates goal:technology has now been distributed to approximately 40,000 users within the UK life insurers and the IFA community. This represents a significant foothold in our core market and provides an important reference for other markets outside the financial services sector. Solutions for the Life and Pensions Market The UK life and pensions industry has faced both falling stock markets and an increasingly competitive environment during the year. Proposed changes in regulation covering the way products are sold are moving forward and a new distribution channel, able to give advice on and sell life and pensions products from a small number of defined providers, will be introduced early next year by the Financial Services Authority. This adds an additional channel to the life companies' already complex distribution model and puts further pressure on insurers to cut their cost base, in particular to reduce their administrative expenses. Our multi-channel advice solution, (MCA), was launched in July 2002 to help life insurance companies to address these issues. Built using goal:technology, MCA allows insurers to develop and launch new products rapidly into multiple channels to market. The following contracts are evidence of our success and demonstrate the Group's ability to increase its penetration across its blue chip customer base. Solutions for Direct Sales Zurich Advice Network, (ZAN), was the first customer to use MCA to support the sales of de-regulated products through its 3,500 strong direct sales force. ZAN's decision criteria were speed to market and cost, which resulted in a Â£250,000 project. The initial business results showed a significant increase in the percentage of business placed electronically and a fast take up and acceptance of the new system. Solutions for Tied channels Increased sales productivity and the reduction in error rates were some of the benefits delivered by RIO, the point of sale solution developed by Focus for Norwich Union Life. During the year, Norwich Union signed an open ended contract extension with Focus for a minimum term of two years, to support the roll-out of RIO to Norwich Union's tied building society partners and its joint venture partner. RIO, described by Norwich Union as a 'world class point of sale solution', was further endorsed when it won the Financial Sector Technology Award for 'Best Use of IT in Insurance'. Solutions for the Independent Financial Adviser (IFA) channel Focus's market leading position in this channel to market gave its customers a fast start to electronic trading whether through integrating goal:technology into the leading IFA software products, through deploying products on the leading industry portals, or through extending their reach into Europe as the following examples demonstrate: - Misys IFA Services integrated goal:technology into its own end to end IFA desktop product, mi-solution. Six months on, there are now over 2,000 subscriber users. - Paymentshield, a leading provider of general insurance products to the mortgage intermediary market to over 16,500 IFAs, is also in the process of integrating goal:technology into its solution, INERTIA. -Insurance companies such as Standard Life have taken advantage of Focus's design and development services to get a fast start in bringing their products to market electronically. -Skandia has extended the reach of goal:technology even further, using goal: technology to capture applications for new policies in its European extranet. Product development - goal:technology - a 21st century approach The traditional approach to building software has resulted in many legacy systems with long lead times for development, and software that is difficult and costly to change and maintain. With speed and flexibility becoming key differentiators of company performance, these old models no longer make commercial sense. Our customers are looking for solutions that enable them to gain competitive differentiation in their markets. They are looking for fast development timescales, solutions that are built in 90 days and can deliver return on investment within the current budget year. goal:technology is unique in meeting these requirements and underpinning the delivery of solutions to customers facing tough trading environments. goal: technology is now delivering proven benefits for 22 customers for both Microsoft and Java environments, running both on-line and off-line. Investment in goal:technology has continued during the year with 16% of turnover spent on product development. In addition to product enhancements, goal: technology has been integrated with other major applications including IBM's Websphere*, BEA's Weblogic* and Oracle's 9i* applications servers. *registered trademarks Strategy The market drivers for change in the UK life and pensions industry will continue to drive the need for e-trading solutions to support an increasing number of distribution channels. Straight through processing (STP) of customer transactions from point of sale to back office policy administration systems will become essential to support low margin products such as stakeholder pensions. Focus will continue to concentrate its resources on the life and pensions market and related markets such as mortgages and the general insurance products associated with house purchases. Selling solutions for multiple distribution channels will enable the Group to increase penetration of its existing customer base and grow its major accounts. Through exploiting its market sector expertise the Group can build new components using goal:technology that can be re-used; driving up margins and increasing speed to delivery. Whilst Focus has a clear opportunity to become a leading provider of e-trading solutions in the UK, extension into the life and pensions markets overseas will be through partners, including FSI in the US. FSI has a non-exclusive licence to continue to use goal:technology to build its solutions for the North American life assurance market. As organisations look for more cost effective ways of automating business processes, the demand for business process management software is growing. goal: technology addresses a critical part of this emerging requirement: the ability to handle complex processes that change frequently and require interaction with the end user. A recent Butler Group audit described goal:technology as 'particularly strong in the insurance sector but also of benefit to organisations that have a large user base and requirements that are complex and variable.' It also identified the growth of web services and business process management as areas of future opportunities for the product. (Butler Group Technology Audit: Focus Solutions goal:technology. Alan Rogers, May 2003) Focus will continue investing to ensure that our goal:technology XML toolkit exploits the recent advances in data capture led by the W3C internet standards authority. A partnership programme has been set up to extend the reach of goal: technology into other market sectors, targeting software companies and systems integrators, where goal:technology can add value to their solutions and cut the costs of development and maintenance. The Annual General Meeting will be held on 24th July at 4.30pm at the offices of Focus Solutions Group plc in Leamington Spa. Focus Solutions Group plc Consolidated Profit and Loss Account For the year ended 31 March 2003 Year ended Year ended 31 March 31 March 2003 2002 Â£'000 Â£'000 Â£'000 Â£'000 Continuing Discontinued Total Operations Operations Turnover 6,583 - 6,583 5,073 Operating loss before Re-organisation costs and Amortisation of Goodwill (1,358) (1,119) (2,477) (2,859) Re-organisation costs (64) (129) (193) - Amortisation of Goodwill - (343) (343) - -------- --------- ------ --------- Operating loss (1,422) (1,591) (3,013) (2,859) Loss on disposal of US - (897) (897) - operations -------- --------- ------ --------- Loss on ordinary activities (1,422) (2,488) (3,910) (2,859) before interest Net interest receivable 89 (12) 77 269 -------- --------- ------ --------- Loss on ordinary activities (1,333) (2,500) (3,833) (2,590) before taxation Taxation 401 - 401 - -------- --------- ------ --------- Loss on ordinary activities after taxation and retained loss for the year (932) (2,500) (3,432) (2,590) ======== ========= ====== ========= Loss per ordinary share (13.4p) (10.3p) No separate statement of total recognised gains and losses has been presented as all such gains and losses have been dealt with in the profit and loss account. Group Balance Sheet 31 March 2003 2003 2002 Â£'000 Â£'000 Fixed assets Intangible assets - - Tangible assets 224 383 --------- -------- Current assets Debtors 1,704 1,438 Investments - Money Market Deposits 656 3,830 Cash at bank and in hand 1,039 780 --------- -------- 3,399 6,048 --------- -------- Creditors: Amounts falling due within one year 1,848 1,504 --------- -------- Net current assets 1,551 4,544 --------- -------- Total assets less current liabilities 1,775 4,927 --------- -------- Net assets 1,775 4,927 ========= ======== Capital and reserves Called up share capital 2,567 2,508 Share premium 9,427 9,426 Merger reserve 220 - Profit and loss account (10,439) (7,007) --------- --------- Shareholders' funds - equity interests 1,775 4,927 ========= ========= Approved by the Board on 12 June 2003 Consolidated Cash Flow Statement For the year ended 31 March 2003 Year ended Year ended 31 March 31 March 2003 2002 Â£'000 Â£'000 Net cash outflow from operating activities (2,375) (3,121) Returns on investments and servicing of finance 73 282 Taxation 345 - Capital expenditure and financial investment (159) (197) Acquisitions and disposals (802) - ---------- --------- Cash outflow before management of liquid resources and financing (2,918) (3,036) Management of liquid resources 3,174 3,252 Financing 3 (24) ---------- --------- Increase in cash in the year 259 192 ========== ========= Reconciliation of net cashflow to movement in net funds Increase in cash in the period 259 192 Change in net funds resulting from financing 3 24 Cash outflow from decrease in liquid resources (3,174) (3,252) ---------- --------- Movement in net funds in the year (2,912) (3,036) Net funds at start of year 4,607 7,643 ---------- --------- Net funds at end of year 1,695 4,607 ========== ========= Notes to the Financial Statements for the year ended 31 March 2003 1. Accounting policies The figures have been extracted from the audited financial statements of Focus Solutions Group plc for the year ended 31 March 2003. The report of the auditors for the period ended 31 March 2003 contains no qualification or statement under sections 237(2) or (3) of the Companies Act 1985. The 2003 annual report and financial statements will be filed with the Registrar of Companies after the Annual General Meeting. The financial information contained in this announcement does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The accounts have been prepared on the basis of the accounting policies set out in the group's 31 March 2002 accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies. The auditors have reported on those accounts. Their report was unqualified and contained no qualification or statement under sections 237(2) or (3) of the Companies Act 1985. 2. Acquisition and Disposal of MPO Group Incorporated On 30 April 2002, the Group acquired the business of MPO Group Incorporated (now Focus Solutions Inc). The acquisition was accounted for on the acquisition accounting basis in accordance with the requirements of FRS 6. The goodwill arising on acquisition is noted below. On 31 March 2003 the Group sold 51% of the issued share capital of Focus Solutions Holdings Inc (which owned 100% of Focus Solutions Inc) to the US management of Focus Solutions Inc for a nominal consideration. At the same time the Company retired from the Board of FSHI and now has no significant influence over the affairs of this business. The loss on disposal of the Group is noted below. Year ended 31 March 2003 Â£'000 Acquisition Shares issued 274 Cash 452 Acquisition costs 350 Fixed Assets acquired (25) Debtors acquired (6) Creditors acquired 6 Loan acquired 144 ----------- Goodwill on acquisition 1,195 =========== Disposal Net Liabilities (115) Goodwill not amortised 852 Costs of disposal 160 ----------- Loss on disposal 897 =========== MPO Group Inc reported losses of $713,000 for the period 28 September 2000 to 28 February 2002, and $112,000 for the period 1 March 2002 to 30 April 2002. The assets were acquired at full value therefore requiring no adjustment. The acquisition contributed net cash outflows during the year of Â£811,000 from operating activities. There are no tax impacts as a result of this disposal. 3. Loss per ordinary share Year ended Year ended 31 March 31 March 2003 2002 Â£'000 Â£'000 Earnings attributable to ordinary shareholders Loss for the financial year (3,432) (2,590) ========= ========== Weighted average number of ordinary shares issued during the year (000's) 25,628 25,084 --------- ---------- Basic loss per share (13.4p) (10.3p) ========= ========== FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally, and there are no other diluting future share issues, diluted EPS has not been presented. 4. Reconciliation of operating loss to operating cash flows Year ended Year ended 31 March 31 March 2003 2002 Â£'000 Â£'000 Operating loss (3,013) (2,859) Depreciation 320 337 Profit on sale of tangible fixed assets (3) (4) Amortisation of goodwill 343 - Increase in debtors (206) (914) Increase in creditors 184 319 --------- ----------- Net cash outflow from operating activities (2,375) (3,121) ========= =========== This information is provided by RNS The company news service from the London Stock Exchange

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