Interim Results

Focus Solutions Group PLC 03 December 2002 3 December 2002 Focus Solutions Group plc Interim results to 30th September 2002 Highlights • Revenue increased by 23% to £2.8 million (6 months to September 30th 2001 £2.3 million) • Cash balance of £2.2 million • Recurring revenue up 89% • Loss before tax, interest, depreciation and goodwill amortisation of £1.6 million (6 months to September 30th 2001 a loss of £1.5 million) • Zurich Advice Network sign first contract for Multi Channel Advice (MCA) solution • Prudential sign 3 year contract for goal:technology Announcing today (details in a separate announcement):- Misys IFA Services sign £400k 5 year licence for goal:technology The Skandia UK Group sign £200k 2 year European licence Commenting on the results, Focus Chief Executive, John Streets said: 'In challenging market conditions, the Group has made encouraging progress. We have achieved a substantial increase in UK revenues from our blue chip customer base, with recurring revenues up by 89% and 12 new contracts signed. Despite the tough market conditions, we anticipate continued revenue growth. Coupled with tight control of costs, the Board remains confident that its strategy to increase its penetration of the life and pensions market and to exploit its core technology will deliver increased value for shareholders.' For further information, please contact Focus Solutions Group plc 01926 468 300 John Streets Claire Forrest Citigate Dewe Rogerson 020 7638 9571 Chris Barrie Sara Batchelor Despite the difficult market conditions affecting our core market, the life and pensions industry, it was encouraging to achieve a 23 per cent increase in revenue and an 89% increase in recurring revenues, compared with the same period last year. In today's tough market conditions, the key differentiators that our solutions deliver are proving particularly important to life and pensions organisations. These include the ability to rapidly generate and deploy software components that will deliver a return on investment within short timescales. This was the key criterion behind Zurich Advice Network's (ZAN) decision to purchase our Multi Channel Advice solution (MCA). Launched in July, this allows insurance companies to build and rapidly launch new products into the increasing number of channels to market they need to support. Two major life offices are now clients of Focus: Prudential and Generali. Perhaps more importantly, the majority of our revenue came from customers where our solutions are now being used in multiple distribution channels and for multiple products. We signed 12 new contracts in the first half of this year and today, we have announced 2 further important licencing contracts. The first, with Misys IFA Services, is to use goal:technology in its own IFA point of sale/compliance desktop solution and the second, with The Skandia UK Group, is to use goal: technology to capture new business transactions for investment bonds via their European extranets. Market conditions were particularly tough in the US for our newly acquired subsidiary, Focus Solutions Inc. However this is a large and attractive market for us and we are making progress with some key prospects. Financial Review Although we announced in October that we are experiencing delays in committing new business, turnover in the first half of the year increased by 23% to £2.8 million (£2.3 million for the six months ended 30th September 2001). Revenue growth accelerated in the second quarter with sales up 27% compared with the first quarter. Losses before interest, tax, depreciation and amortisation (EBITDA) were £1.6 million compared with a loss of £1.5 million in the first half of the last financial year. Operating loss before tax and interest was £1.9 million (six months ended 30th September 2001 - loss of £1.6 million). Over £700,000 was invested in the first half of the year in our core software - goal:technology - to respond to customer requirements and to extend the product set. This included a new facility for insurance companies to e-mail an electronic product application to an intermediary or a customer. The loss per share for the period was 7.2p, compared with a loss of 5.7p for the six months ended 30th September 2001. The Board does not propose to pay an interim dividend. The cash balance at the end of the period was £2.2 million after spending £941,000 acquiring MPO Inc. (including the repayment of its £139,000 bank debt). Although cash spend initially increased following the acquisition, it decreased in the second quarter as costs were held and revenues increased. As at 31st March 2002 our cash balance was £4.6 million. Operations Review Activity in the life and pensions market has been high as insurers prepare for the forthcoming depolarisation legislation and the more complex distribution environment that this will bring. As a result, we signed 12 new contracts in the first half of the year as many customers chose to extend their use of our solutions into additional distribution channels. These include the first European licence for goal: technology signed by Skandia and an initial phase of a MCA solution for ZAN's 3,000 strong direct sales force. We have used goal:technology to design and build applications for Scottish Widows and Scottish Equitable. This will enable IFAs to submit new business proposals for insurance products to Scottish Equitable and Scottish Widows electronically and will increase the number of electronic products available to IFAs via the main insurance industry portals; Assureweb, IFAengine and The Exchange. Many life and pensions providers believe their investment in electronic trading is starting to deliver substantial business benefits. Volumes of electronic transactions are accelerating; one of our customers is receiving over 2000 electronic applications a week from its tied agents. Error rates are being slashed; Norwich Union's RIO point of sale system has reduced its error rates by 50% to date, in comparison with paper-based applications. Strategic Development The Group has made significant progress in establishing its position as a specialist supplier of sales automation solutions built using goal:technology and now has a blue chip customer base that includes 7 out of the top 10 UK insurance companies. In parallel it has continued to extend the functionality of its core software product, goal:technology, to address the growing requirement of organisations for software that will rapidly generate applications to automate complex business processes. As a result, the Group is now operating two businesses, both based on goal: technology: a solutions business for the UK and US life and pensions industry and a leading edge software product business with global multi-market potential. Board Changes To ensure that the Group has the right resources and skills to exploit both parts of its business, a number of changes, including changes to the Board, are being put in place. Two new non-executive directors were appointed in July 2002. Alastair Taylor, who was appointed Deputy Chairman, was previously the President for the Global Financial Services Industry for Unisys Corporation, bringing high level financial services contacts and worldwide experience in both the IT and financial services industries. Lin Johnstone, who has 14 years experience of the customer relationship management (CRM) and contact centre market, brings valuable expertise in the global exploitation of leading edge technology. I will be using my specialist skills to assist the Group in the strategic development of the software product business. Such assistance is by definition not independent, so I will be stepping down from the Board on 4th December 2002. Alastair Taylor will become non-executive Chairman and I have every confidence that his specific expertise in the financial services IT market will drive the Group forward. I would like to thank all the staff and my Board colleagues for their support during the last two and half years and to wish Alastair every success in the future. I look forward to the new challenge of helping the Group unlock the value of goal:technology. Outlook In view of the delays that we are experiencing as already indicated in our trading statement of 21st October 2002, the Board has decided on a number of cost cutting actions. These are being implemented during the second half of the financial year and are expected to deliver annualised cost savings of approximately £1.0 million on our existing cost base. In the second half of the year we will continue to invest in goal:technology but the amount will be consistent with the anticipated revenue. Despite today's difficult market conditions, we anticipate continued revenue growth, albeit at lower levels than originally planned. Our sales pipeline remains strong and is growing month on month. Taking cost out of the sales process as distribution becomes more complex and delivering speed to market for new products remains high on our customers' priorities as they prepare their budgets for next year. Our MCA solution matches these business objectives and, underpinned by goal:technology, can deliver the challenging return on investment timescales being set by our customers in the life and pensions market. The Board remains confident that with on-going revenue growth, as demonstrated by the orders announced today, and tight control of costs, the Group will make good progress in implementing its strategy. Increasing our penetration of the sales automation market within the life and pensions industry globally and working to fully realise the potential of goal:technology will be the key to increasing value for our shareholders. Richard Jephcott Chairman Focus Solutions Group plc Summarised Consolidated Profit and Loss Account For the six months ended 30 September 2002 6 months ended 6 months ended 12 months ended 30 September 2002 30 September 31 March 2001 2002 £'000 £'000 £'000 Turnover 2,821 2,285 5,073 Continuing operations 2,821 Acquisitions - _______ _________ ________ Operating loss before national insurance on share (1,575) (1,454) (2,569) options granted, depreciation and amortisation of goodwill Continuing operations (1,229) Acquisitions (346) National insurance on share options granted 39 13 47 Depreciation (193) (156) (337) Amortisation of goodwill (161) - - ________ ________ ________ Operating loss (1,890) (1,597) (2,859) Continuing operations (1,376) Acquisitions (514) Net interest receivable 56 171 269 ________ ________ ________ Loss on ordinary activities before taxation (1,834) (1,426) (2,590) Taxation - - - ________ ________ ________ Loss on ordinary activities after taxation (1,834) (1,426) (2,590) and loss for the period ________ ________ ________ Loss per ordinary share (note 2) (7.2p) (5.7p) (10.3p) ________ ________ ________ Diluted loss per ordinary share (note 2) (7.2p) (5.7p) (10.3p) ________ ________ ________ Adjusted loss per ordinary share (note 2) (6.2p) (5.8p) (10.2p) ________ ________ ________ Turnover and operating loss are derived from the Group's continuing operations. 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. Focus Solutions Group plc Summarised Consolidated Balance Sheet 30 September 2002 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Fixed assets Tangible assets 328 467 383 Intangible assets - goodwill 3,784 - - ________ ________ _________ 4,112 467 383 Current assets Debtors 1,293 1,335 1,438 Short term investments - money market deposits 1,459 5,071 3,830 Cash at bank and in hand 704 712 780 ________ ________ ________ 3,456 7,118 6,048 ________ ________ ________ Creditors: Amounts falling due within one year 1,450 1,421 1,504 ________ ________ ________ Net current assets 2,006 5,697 4,544 ________ ________ ________ Total assets less current liabilities 6,118 6,164 4,927 Creditors: Amounts falling due in more than one year - 73 - ________ ________ ________ Net assets 6,118 6,091 4,927 ________ ________ ________ Capital and reserves Called up share capital 2,567 2,508 2,508 Shares to be issued 2,750 - - Share premium 9,647 9,426 9,426 Profit and loss account (8,846) (5,843) (7,007) ________ ________ ________ Shareholders' funds - equity interest 6,118 6,091 4,927 ________ ________ ________ Focus Solutions Group plc Summarised Consolidated Cash Flow Statement For the six months ended 30 September 2002 6 months ended 6 months 6 months 30 September ended ended 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Net cash outflow from operating activities (1,565) (1,940) (3,121) Returns on investments and servicing of finance 54 166 282 Capital expenditure and financial investment (131) (103) (197) Acquisitions (802) - - ________ ________ ________ Cash flow before management of liquid resources & (2,444) (1,877) (3,036) financing Management of liquid resources 2,371 2,012 3,252 Financing (3) (10) (24) ________ ________ ________ (Decrease)/increase in cash in the year (76) 125 192 ________ ________ ________ Change in net debt resulting from cash flows Half year Half year Full year 2002 2001 2002 £'000 £'000 £'000 (Decrease)/increase in cash in the period (76) 125 192 Change in net funds resulting from cash flows 3 10 24 Cash outflow from increase in liquid resources (2,371) (2,012) (3,252) ________ ________ ________ Movement in net funds in the period (2,444) (1,877) (3,036) Net funds at start of year 4,607 7,643 7,643 ________ ________ ________ Net funds at end of period 2,163 5,766 4,607 ________ ________ ________ Focus Solutions Group plc Notes to the interim financial statements 1. Basis of preparation The summarised half year financial information is unaudited and does not constitute statutory accounts for the purposes of section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 March 2002, which received an unqualified audit report, have been delivered to the Registrar of Companies. The unaudited financial information has been prepared on the basis of the accounting policies set out in the group's 31 March 2002 audited statutory accounts and the new policies introduced since that date, as noted below. Goodwill and Amortisation Goodwill arising on acquisition is capitalised in the balance sheet in the month in which it arises and amortised over its estimated useful life of 10 years. It is reviewed for impairment at the end of the first full financial year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. Deferred Consideration Deferred consideration is accounted for when it can be reasonably foreseen that the payments will be made. 2 Loss per ordinary share 30 September 30 September 31 March 2002 2001 2002 Earnings attributable to ordinary shareholders £'000 £'000 £'000 Loss for the financial period (1,834) (1,426) (2,590) ________ ________ ________ Weighted average number of ordinary shares issued during the year (000's) 25,581 25,084 25,084 Dilutive effect of share options - - - ________ ________ ________ Adjusted weighted average number of ordinary shares in issue during the year (000's) 25,581 25,084 25,084 ________ ________ ________ Basic earnings per share (7.2p) (5.7p) (10.3p) ________ ________ ________ Diluted earnings per share (7.2p) (5.7p) (10.3p) ________ ________ ________ Adjusted earnings per share (6.2p) (5.8p) (10.2p) ________ ________ ________ Adjusted earnings per share has been calculated before national insurance on share options granted, interest, depreciation and amortisation of goodwill. 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 underwater share options. Since it seems inappropriate to assume that option holders would exercise underwater share options, and there are no other diluting future share issues, diluted EPS has not been presented. 3 Acquisition of MPO Group Incorporated On the 30th April 2002, the Group acquired the business of MPO Group Incorporated (now Focus Solutions Inc). The goodwill arising on acquisition is noted below. The shares to be issued are in relation to deferred consideration which will be paid following the announcement of the results for the years ending 31 March 2004 and 2005 assuming the achievement of certain performance related targets for those financial periods. It has been assumed that all deferred consideration will be satisfied in ordinary share capital although the Group has the opportunity to pay up to 50% of this deferred consideration in cash. £'000 Liabilities acquired Creditors 119 Costs of acquisition: Shares issued 274 Cash 452 Acquisition costs 350 ______ 1,195 Shares to be issued 2,750 ______ Goodwill 3,945 ______ This information is provided by RNS The company news service from the London Stock Exchange

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