eg solutions plc

Half year results for the six months ended 31 July 2011

eg solutions plc ('eg' or 'the Company'; LSE-AIM: EGS), the back office optimisation software company, announces its unaudited half year results for the six months ended 31 July 2011.

Financial highlights

* Exceptional item for 2011: nil (H1 2010/11: £67,000 professional services relating to XTAQ acquisition)

Key points

·     Strong financial performance driven by international revenue growth and delivery of projects won at end of last financial year

·     92% growth in pre-tax profit reflects margin improvement from licence sales and cost control

·     19% rise in cash at 31/7/11, compared to 31/7/10, after total expenditure of £0.73m on investment in product development and the purchase of shares by the EBT

·     63% increase in operational cashflow

·     Substantial progress in major enhancement of core software products which, when completed, will expand eg's customer base and strengthen its leading market position

·     Emergence of back office workforce optimisation market continues

On outlook, Rodney Baker-Bates, Non-executive Chairman, stated:

"The demand for back office optimisation solutions continues, with existing and new customers, both in the UK and internationally, responding positively to our existing products as well as those we are developing.

Given the proportion of anticipated revenues contracted, and with the sales pipeline growing, we remain confident of our prospects for the remainder of the financial year."

Contacts

About eg solutions plc

eg solutions plc is a global back office optimisation software company. Our software provides historic, real-time and predictive Operational MI. When implemented with our training programme for managers and team leaders to use this intelligence, we guarantee improvements in operational results in short timescales.

The Company, which is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange, is committed to customer satisfaction and the ongoing development of its operations management solutions.

CHAIRMAN'S STATEMENT

Introduction

During the six months ended 31 July 2011, the trading momentum of last year was maintained with eg increasing revenues, profits and cashflow.  This strong financial performance was driven by growth in South Africa and the delivery of projects won at the end of our last financial year. 

The emergence of the back office optimisation market continues and eg remains well positioned to take advantage of the growth opportunities this offers.  During the period we made substantial progress with a programme to enhance our core software product suite which will position eg well to expand its customer base and strengthen its leading product and market position.  The benefits of this effort are starting to be reflected in the sales pipeline and we are on track both to achieve market expectations for the full year and to sustain longer term profitable growth.  

Financial performance

Total revenue for the period increased by 10.3 per cent to £2.66 million (H1 2010/11: £2.41 million).

Software licences, maintenance and software services contributed 81 per cent of total revenue (H1 2010/11: 73 per cent; full year 2010/11: 70 per cent) with the balance of 19 per cent coming from implementation and training services.

Gross margins increased to 64.7 per cent (H1 2010/11: 63.7 per cent) reflecting growth in licence sales. 

Profit before tax and exceptional items increased by 92.4 per cent to £0.28 million (H1 2010/11: £0.15 million before exceptional item).

Operating cashflow for the period was up 63.1 per cent to £1.15 million (H1 2010/11: £0.71 million).  Cash at 31 July 2011 was £0.92 million (31 January 2011: £0.49 million; 31 July 2011: £0.77 million) after investment in software product development of £0.38 million during the period and the purchase by the eg solutions plc Employee Benefit Trust for £0.35 million of eg shares to cover part of the options over 1.13 million eg shares which were awarded to key XTAQ employees. 

The Board has decided not to declare an interim dividend.

Operational review

The trend of financial institutions seeking to improve operational control and minimise back office costs is continuing.  Consequently demand is growing for real-time and historic management information combined with the forecasting and planning capabilities normally found in the front office.

Against this background eg's goal is to continue to provide the market's leading back office optimisation product with the most comprehensive functionality, purpose-built for back offices.

At a Product Showcase held in May 2011, eg work manager^® v6.0 was formally launched.  This rich internet application improves usability with a contemporary user interface and, as it is fully cloud enabled, reduces the cost of ownership for our clients.  This thin client version also provides for service-based, real-time integration with line-of-business applications to provide a seamless operations management platform for end users.

During the period, we made substantial progress with a major product development programme to ensure eg continues to offer the industry's most complete, purpose-built back office optimisation solutions.  Work is under way to integrate eg work manager^® with the Nuqleus products acquired with XTAQ in March 2010.  This new version will combine all the features of eg work manager^® with eg data capture™, a desk-top data capture module that enables actual time measurement as well as application and process analysis.  Using application event triggers, it will also provide process discovery and guidance capability to improve compliance and allow process automation using eg process accelerators™.

We are also in the final stages of enhancing our back office forecasting solution to fully meet the requirements of forecasting complex back office processes.  It uses eg's unique capability to manage multiple, end-to-end processes each consisting of multiple stages with differing Service Level Agreements which may be undertaken across many locations.

Through this development programme we will launch our software as an enterprise platform product with core modules consisting of forecasting, real-time work management and reporting and analytics.

We have continued to win and implement major client contracts.  In the UK work has been underway to implement contracts won at the end of our last financial year.  In July 2011, a new contract, worth approximately £660,000, was won from an existing customer in South Africa (a leading investment administration company which provides outsourced healthcare services) to roll-out further users of the eg operational intelligence^® software suite. 

Approximately 67 per cent of anticipated revenues for the full year are already under contract.

At the same time as developing and expanding the business, our continued focus on cost control resulted in administrative expenses being maintained in line with the prior year despite increased sales.  As a result operating margins increased to 10.9 per cent (H1 2010/11: 6.0 per cent before exceptional item).

Current trading and outlook

The demand for back office optimisation solutions continues, with existing and potential customers, both in the UK and internationally, responding positively to our existing products as well as those we are developing.

Given the proportion of anticipated revenues contracted, and with the sales pipeline growing, we are confident of our prospects for the remainder of the financial year.

Consolidated Interim Cash Flow Statement

for the six months ended 31 July 2011

This statement is unaudited

Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 31 July 2011

1.        Basis of Preparation

The interim financial information consolidates the results of the company and its subsidiary undertakings made up to 31 July 2011.  The company is a limited liability company incorporated and domiciled in England & Wales and whose shares are listed on the Alternative Investment Market.

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. It does not therefore include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 January 2011.

The financial information for the 6 months ended 31 July 2011 is unaudited. The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK Groups listed on the Alternative Investment Market (AIM), in the preparation of these interim financial statements.

Full accounts of eg solutions plc for the year ended 31 January 2011 have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 498(2-4) of the Companies Act 2006.

Significant accounting policies

The accounting policies used in the preparation of the financial information for the six months ended 31 July 2011 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those that are expected to be adopted in the annual statutory financial statements for the year ending 31 January 2012.  These are not expected to differ significantly from those adopted in the financial statements for the year ended 31 January 2011.

The interim report for the six months ended 31 July 2011 was approved by the Board of Directors on 21 September 2011.

2.        Segment Reporting

Business Segments

eg solutions plc provides IT and software support services by operating two distinct companies in the United Kingdom ("EGUK") and in South Africa ("EGSA").  Financial information is reported to the board for both companies individually with revenue and operating profits split by geographical location.  Segment revenue comprises of sales to external customers and excludes finance income. Segment profit reported to the board represents the profit before tax earned by each segment. 

For the purposes of assessing segment performance and for determining the allocation of resources between segments, the Board reviews the non-current assets attributable to each segment as well as the financial resources available. All assets and liabilities are allocated to reportable segments.   Information is reported to the board of directors on a company basis as management believe that each company exposes the Group to differing levels of risk and rewards due to local economic conditions.  The segment profit or loss, segment assets and segment liabilities are measured on the same basis as amounts recognised in the financial statements, as set out in the accounting policies.

Segment information about these companies is presented below.

During the period the Group had revenues from 3 customers amounting to £1,037,000 in total that individually made up more than 10% of revenues generated. (6m to 31 July 2010 3 customers amounting to £1,090,000 in total)

3.        Taxation

Domestic income tax is calculated at 26% (31/07/10 and 31/01/11: 28%) of the estimated assessable profit for the period.

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

4.        Dividends

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

5.        Earnings per share

EPS has been calculated using the following methodology:

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the number of weighted average ordinary shares during the period.  The number of shares excludes shares held by an Employee Benefit Trust.

For diluted earnings per share, the number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.  These represent share options granted to employees and 5% Convertible Loan Notes.

6.        Intangible assets

Amortisation and impairment have been included in cost of sales in the Consolidated Statement of Comprehensive Income.

7.                Trade and other payables

Trade and other payables are as follows:

8.                Availability of announcement

Copies of this announcement are available from the Company's registered office a t Dunston Business Village, Stafford Road, Dunston, Stafford, Staffordshire ST18 9AB and from www.eguk.co.uk.