Interim Results

Gresham Computing PLC 21 July 2000 GRESHAM COMPUTING plc INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 APRIL 2000 CHAIRMAN'S STATEMENT RESULTS Gresham's performance over the past twelve months has been unsatisfactory. The trading results for the six months ended 30 April 2000 show group revenue of £11.2 million (1999 £16.3 million), an operating loss before goodwill amortisation of £2.25 million (1999 profit £1.6 million) and a loss per share of 6.06 pence (1999 profit per share of 2.57 pence). The twelve months to 30 April 2000 were preceded by a period of unprecedented expansion involving acquisitions across three continents. The losses were the result of a combination of the issues associated with the integration of those businesses; a particularly severe downturn in the financial services business and the difficult trading conditions arising from the Y2K microclimate. In common with many other companies in our sector, the Y2K economic conditions affected much of our first half year, which ended on 30 April 2000. MANAGEMENT CHANGES There have been significant board and management changes over the last six months. Following the appointment of Andrew Walton-Green as Chief Executive Officer on 11 April 2000 I am pleased to report that: * a comprehensive review of the group's business has taken place; * a clear strategy has been developed; * an extensive restructuring programme is underway, and * the new Board of Directors is united and committed to returning the group to profitability in the short term while delivering the longer-term strategy. STRATEGY Gresham's core business is the provision of enterprise solutions, through niche technologies and specialist services. Our mission is to provide enterprise solutions that * deliver value to our customers and * build stakeholder value. In order to develop the full potential and value of our enterprise solutions the business has been organised into five business streams. To retain the niche focus of each division, each will act as an independent operating unit under the Gresham umbrella. Where appropriate, we will form collaborative relationships, both within and outside the group, to maximise business opportunities. The operational activities of the five divisions are described in brief below: * Enterprise Solutions Software (ESS) ESS develops and derives license income from non-application related enterprise software. The route to market is either via direct sales, a Gresham channel or an external channel. Where appropriate, ESS will also provide related services. ESS is responsible for the exploitation of the group's technologies including: * ICL/Compac/Tandem operational products; * Casablanca, a middleware XML object driven legacy systems integration tool; * OpenBackup, a back-up system for distributed systems; * Tal2C, an automated transition process to industry standard C for the Compac/Tandem platform; * Autoscriptor Inferno, a cross platform GUI non-invasive automated testing solution; * Enterprise Storage division, based in Austin which provides SAN connectivity solutions. ESS has delivered revenue growth in excess of 10% compared with the equivalent six-month period a year ago. This has been achieved in large part as a result of the Enterprise Storage division which has recorded an increase in turnover in excess of 100% compared to the six months ended 30 April 1999, and strong profitability during the period. * SIM Testing (SIM) SIM provides automated and bespoke end-to-end testing services for web (50% of turnover) and other IT systems projects, independent of the IT systems provider. It provides a value added service through utilisation of our technical and process know-how to facilitate a faster in-depth testing service and follow-on automated remote testing services over the web. The past 12 months has shown no increase in turnover. This is due to the change in product mix together with the Y2k microclimate. SIM has moved a major amount of its business from contracting type activities to value added activities. It is expected that the next 12 months will show an increase in both turnover and profitability. This is largely due to the significant b2b and b2c activities being put into place by the major blue chip and financial services businesses and improved access to market via partnerships. * Financial Services The Financial Services division suffered a dramatic downturn in turnover in the 12 months to 30 April 2000. It was a major cause of the losses of the group as a result of structural, economic and management issues. In particular, the UK was severely affected by the Y2K close down and stiff competition in what had been our most profitable market - Atlas enhancement work. While we still provide this service for Atlas legacy systems, it is now a small component in a more comprehensive offering. With effect from 3 July 2000, the four elements of our Financial Services division across three continents have now been brought together under one divisional head, Mary Murphy. As a result of the restructuring, we are now able to provide global value-added IT solutions using our specialist skills and knowledge of financial systems. Key areas of expertise include: * Systems integration and migration * Payment systems * Compact/Tandem transition services * Design and build of bespoke web application solutions * Selection/implementation of application software Market conditions are showing rapid improvement and Casablanca, our legacy integration tool, is proving to be a key component in differentiating us from our competitors in this market. Routes to market will continue to be developed through mutually beneficial partnership arrangements. * Integration Solutions (IS) Gresham has long been recognised as an expert supplier of integration solutions in the ICL market. As our clients have moved to other platforms, so our expertise has grown and we now have a comprehensive ability to integrate both legacy and new technology systems. We offer services to connect both single and/or multiple back- end systems so as to providing bespoke b2b and b2c solutions, bringing operational systems to the web. Our focus is in performing the technically challenging integration services. We then work closely with the client, either to develop the right front-end solution or, where one exists already, to work closely with a best-of-breed application software partner. IS has considerable experience in: * Supply Chain Management * SmartCard technologies in conjunction with specialist middleware providers * ICL integration/migration exercises The results of this business were significantly affected when, due to Y2K market conditions, follow-on business did not materialise when 1999 projects were completed. Specialist integration services are in high demand due to the significant market activity in bringing enterprise systems to the web. We are in a strong position to capitalise on this demand and anticipate strong growth. * Contract Staff & Recruitment Despite having a business profile that differs from that of the rest of the group, our recruitment arm has for many years successfully provided contract IT staff both to internal and external clients. Going forwards, it will specialise in recruitment and contract services for the areas addressed by the other components of the group. It remains profitable, although like all our businesses it was adversely affected by the market conditions created by the Y2K fears. OUTLOOK I am also pleased to report that we are now benefiting from improved market conditions in all aspects of our business, and, with our new focus, are experiencing significantly higher levels of enquiries from existing and new customers in most business areas. The Directors and I believe that the new strategy, combined with the clear focus and improved market conditions will enable us to return to monthly operating profitability by the end of 2000. GRESHAM EMPLOYEES The Directors and I would like to take this opportunity to thank our staff for their dedication and support over the past difficult year. Sid Green Chairman For further information, please contact: Gresham Computing plc 020 7653 0200 Andrew Walton-Green, Chief Executive Officer Square Mile Communications 020 7601 1000 Kevin Smith GRESHAM COMPUTING plc GROUP PROFIT AND LOSS ACCOUNT for the six months ended 30 April 2000 Six months ended Six months ended 30 April 2000 30 April 1999 Before Goodwill Before Goodwill goodwill amortisation goodwill amortisation Note £'000 £'000 £'000 £'000 £'000 £'000 TURNOVER 2 11,206 11,206 16,301 16,301 Cost of sales 6,754 6,754 5,961 5,961 ___________________________________________________________ GROSS PROFIT 4,452 4,452 10,340 10,340 Administrative expenses 6,032 351 6,383 8,749 78 8,827 Administrative expenses - exceptional items 3 674 674 ___________________________________________________________ OPERATING (LOSS) (2,254) (351) (2,605) 1,591 (78) 1,513 /PROFIT Net interest (payable) receivable (118) (118) (30) (30) ___________________________________________________________ (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (2,372) (351) (2,723) 1,561 (78) 1,483 Taxation on result on ordinary activities (183) (183) 492 492 ___________________________________________________________ PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (2,189) (351) (2,540) 1,069 (78) 991 Dividends - non- equity interests 33 33 27 27 ___________________________________________________________ Retained profit for the year (2,222) (351) (2,573) 1,042 (78) 964 =========================================================== Earnings per share (basic) 4 (6.06) 2.57 Earnings per share (fully diluted) 4 (6.06) 2.35 GRESHAM COMPUTING plc GROUP PROFIT AND LOSS ACCOUNT for the six months ended 30 April 2000 Year ended 31 October 1999 Before Goodwill goodwill amortisation £'000 £'000 £'000 TURNOVER 30,350 30,350 Cost of sales 11,941 11,941 ___________________________________________________________ GROSS PROFIT 18,409 18,409 Administrative expenses 18,045 463 18,508 Administrative expenses - exceptional items 620 620 ___________________________________________________________ OPERATING (LOSS) /PROFIT (256) (463) (719) Net interest (payable) receivable (145) (145) ___________________________________________________________ (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (401) (463) (864) Taxation on result on ordinary activities (24) (24) ___________________________________________________________ PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (377) (463) (840) Dividends - non- 66 66 equity interests ___________________________________________________________ Retained profit for the year (443) (463) (906) =========================================================== Earnings per share (basic) (2.29) Earnings per share (fully diluted) (2.29) GRESHAM COMPUTING plc GROUP BALANCE SHEET at 30 April 2000 At 30 At 30 At 31 April April October 2000 1999 1999 £'000 £'000 £'000 Fixed Assets Intangible assets 8,447 13,115 8,868 Investments 19 - Tangible assets 3,141 3,430 3,345 _________________________ 11,588 16,564 12,213 _________________________ Current Assets Debtors 6,066 10,810 8,270 Cash at bank and in hand 105 1,063 231 _________________________ 6,171 11,873 8,501 Creditors: amounts falling due 6,309 7,946 6,558 within one year _________________________ Net Current (Liabilities) assets (138) 3,927 1,943 _________________________ Total Assets Less Current 11,450 20,491 14,156 Liabilities _________________________ Creditors: amounts falling due 2,403 2,826 2,430 after more than one year Provisions for liabilities and 68 49 charges _________________________ 9,047 17,597 11,677 ========================= Capital and reserves Called up share capital 2,664 2,557 2,618 Shares to be issued 1,616 8,327 2,925 Share premium account 5,230 3,448 3,969 Special reserve 313 313 313 Merger reserve - 2,058 - Profit and loss account (776) 894 1,852 _________________________ 9,047 17,597 11,677 ========================= Shareholders' funds Equity interests 8,537 17,087 11,167 Non-equity interests 510 510 510 _________________________ 9,047 17,597 11,677 ========================= GRESHAM COMPUTING plc CASHFLOW STATEMENT for the six months ended 30 April 2000 Six months ended Year ended 30 April 30 April 31 October 2000 1999 1999 £'000 £'000 £'000 Operating (Loss)/profit (2,605) 1,513 (719) Depreciation 479 338 835 Amortisation 421 176 594 Loss/(profit) on sale of fixed assets (5) 1 3 Decrease/(Increase) in debtors 2,206 (1,943) 563 Increase/(Decrease) in creditors 420 (350) (1,381) Foreign exchange movement (41) (26) (42) ________________________________________ Net cash inflow/(outflow) from operating activities 875 (291) (147) ________________________________________ Returns on investment and servicing of finance Net interest (paid)/received (118) (30) (145) Preference dividend paid - (54) (53) ________________________________________ (118) (84) (198) ________________________________________ Taxation paid (164) (285) (511) ________________________________________ Capital expenditure and financial investment Payments to acquire tangible fixed assets (298) (1,140) (1,573) Receipts from sale of tangible fixed assets 32 9 67 ________________________________________ (266) (1,131) (1,506) ________________________________________ Acquisitions Purchase consideration and acquisition costs of subsidiary undertakings (63) (3,118) (3,013) Net (overdraft)cash acquired with subsidiary undertakings - (20) (20) ________________________________________ (63) (3,138) (3,033) ________________________________________ Equity dividends paid - - (217) ________________________________________ Financing New long term loans - 2,250 2,000 Receipts from finance lease facility - 344 419 Repayments of finance leases and loans (134) (203) (377) New ordinary shares issued (net of issue costs) - (2,496) 2,432 ________________________________________ Net inflow/(outflow) from financing (134) 4,887 4,474 ________________________________________ Increase/(Decrease) in net cash in in the period 130 (42) (1,138) Exchange difference - (8) - Opening net cash (25) 1,113 1,113 ________________________________________ Closing net cash 105 1,063 (25) ________________________________________ NOTES TO THE INTERIM ACCOUNTS For the six months ended 30 April 2000 1 The interim accounts have been prepared on the basis of the accounting policies set out in the group's 1999 statutory accounts and are unaudited. The interim financial statements do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. 2 Segmental analysis Analysis of turnover by business segment Six months ended Six months ended 30 April 2000 30 April 1999 Inter Inter Segment segment External Segment segment External turnover turnover turnover turnover turnover turnover £'000 £'000 £'000 £'000 £'000 £'000 Enterprise Solutions Software 3,772 3,772 3,351 3,351 Financial Services 3,168 3,168 7,511 7,511 SIM Testing 1,830 1,830 380 380 Contract Staff 2,315 (618) 1,697 4,027 (1,057) 2,970 & Recruitment Integration Solutions 739 739 2,089 2,089 ___________________________ ___________________________ 11,824 (618) 11,206 17,358 (1,057) 16,301 =========================== =========================== Analysis of turnover by source and destination Source Destination 2000 1999 2000 1999 £'000 £'000 £'000 £'000 United Kingdom 7,769 13,843 5,701 9,992 Europe 206 440 2,117 3,993 North America 2,479 1,567 2,626 1,619 Rest of the world 752 613 762 697 Inter-segment elimination - (162) - - ______________________ ________________________ 11,206 16,301 11,206 16,301 ====================== ======================== 3 Exceptional items Exceptional costs comprise the ongoing costs of reorganising and restructuring the group, they include compensation for loss of office, redundancy costs and professional fees related to group restructuring and employee matters. 4 Earnings per share The calculation of earnings per ordinary share has been based on the loss attributable to shareholders, adjusted for preference dividends of £2,573,000 (1999 profit £964,000, year ended 31 October 1999 loss £906,000) and on a weighted average number of shares of 42,469,134 (1999 37,497,320, year ended 31 October 1999 39,613,267). Diluted earnings per share are identical to basic earnings per share for the year ending 31 October 1999 and six months ending 30 April 2000 because potential diluting events would have the effect of reducing the loss per ordinary share. For the six months ended 30 April 1999, diluted earnings per share is calculated on a profit of £991,000 after adding back preference dividends. The weighted average number of shares used is 42,205,471 after including the dilutive effect of potential ordinary shares. 5 Reconciliation of shareholders' funds Six months ended Year ended 30 April 30 April 31 October 2000 1999 1999 £'000 £'000 £'000 (Loss)/Profit for the period (2,540) 991 (840) Exchange difference on retranslation of net assets of subsidiary undertakings (55) (17) (45) ________________________________________ Total recognised gains and losses (2,595) 974 (885) Dividends (33) (27) (66) Shares issued 1,307 6,251 7,527 Shares to be issued (1,309) 6,558 1,156 Goodwill on acquisitions - - 104 ________________________________________ Total movements during the (2,630) 13,756 7,836 year Opening shareholders' funds 11,677 3,841 3,841 ________________________________________ Closing shareholders' funds 9,047 17,597 11,677 ======================================== 6 An interim report will be sent to all shareholders by 4 August 2000 and will be available to all members of the public during normal business hours at the company's registered office: Mitchell House, Brook Avenue, Warsash, Southampton, SO31 9ZA.

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