Final Results

Focus Solutions Group PLC 12 June 2007 Embargoed until 07.00 12th June 2007 Focus Solutions Group plc ("Focus" or "the Group") Results for the year ended 31 March 2007 Focus Solutions Group plc (AIM: FSG), a leading provider of adaptive software solutions to the financial services industry, is pleased to announce its Results for the year ended 31 March 2007. Financial highlights • Sales revenue up 20% to £7.91 million (FY2006: £6.58 million) • Operating profit before exceptional costs £1.20 million (FY2006: £0.37 million) • Operating profit £0.99 million (FY2006: £0.09 million) • Net operating margins rose to 1.4% to 12.5% • Pre-tax profit £1.04 million (FY2006: £0.11 million) • Operating cash inflow of £2.80 million (FY2006: £0.83 million outflow) • Year end cash balance of £3.00 million (FY2006: £0.12 million); debt free balance sheet • Basic earnings per share 5.46 pence (FY2006: 0.39 pence) • Fully diluted earnings per share 5.22 pence (FY2006: 0.39 pence) • Pre-deferred tax adjusted fully diluted earnings per share of 3.72 pence (FY2006: 0.39 pence) Operating highlights • Significant new contract wins during the year included: • HSBC Bank plc • St James's Place • Irish Life • Lincoln Financial Group • BT plc • Strengthened relationships with existing clients, including Barclays, Openwork Limited and Home of Choice Commenting on the results and prospects, Richard Stevenson, Chief Executive, said: "We have taken a substantial step forward over the past year. These results are testament to the improvements made by the business and to the efforts of all our employees. The new financial year has started well and in line with market expectations. We look forward to continuing to execute the established strategy to develop a successful, consistently growing, profitable and cash generative business." Enquiries: Focus Solutions Group Richard Stevenson Chief Executive 01926 468 300 Martin Clements Finance Director 077696 54527 Seymour Pierce Mark Percy 0207 107 8032 Smithfield Tania Wild / Reg Hoare 0207 360 4900 Notes to editors: Focus is an established supplier of easily configured and re-usable component based software and business services, which enable faster, more effective and cost efficient processing of complex customer transactions. Focus has helped some of the world's leading public and private sector organisations successfully automate their most demanding customer processes. For further information on Focus, please visit www.focus-solutions.co.uk. Chairman's Statement Introduction I am delighted to be able to report on another successful year for the Group, which has exceeded our original expectations, with both revenue and profits once more showing significant growth. Having delivered our first ever profit as a public company two years ago and made further improvements last year, this year we took a substantial step forward achieving operating profit before exceptional costs of £1.2 million. Cash generation in the year was also strong, and the Group ended the year with a cash balance of £3.0 million and no debt. These results represent further proof of the fundamentally improved prospects for the business over the past two years. We have entered the new financial year with our order backlog standing at record levels. We remain focussed on delivering market leading Point Of Sale ("POS") solutions to the UK financial services market, with particular emphasis on the life and pensions and mortgage markets. We expect to deliver further strong organic growth at attractive margins, and we will continue to consider suitable acquisition opportunities within our markets. Operations In the Chief Executive's Report there is a more detailed review of our activities in the year. However, I would like to draw your attention to the significant progress made in the year. The business won a series of important new contracts against strong competition including HSBC Bank plc, St James's Place, Irish Life and Lincoln Financial Group. These new contract wins have consolidated our position as the leading POS solution to the UK Financial Services market. The continual change in regulation in the UK life and pensions and mortgage markets has driven demand for our solutions as leading financial institutions have sought to fundamentally change their sales processes and their supporting technology, in order to sell products from a range of providers and remain competitive. Focus' e-trading solutions and extensive footprint in the UK life insurance and mortgage markets has put it in a strong position to support the organisations which have chosen to become distributors, or multi-tied, and this has resulted in a number of major strategic projects. During the year, the Group won its biggest ever single order, a £6 million contract with HSBC Bank plc. This project continues to progress well and is expected to go live in the first half of 2008. This contract was awarded after an eight month consultancy services and project scoping exercise, at the end of which HSBC were convinced that Focus was the best choice for the development of the new system, in close partnership with their own IT professionals. As well as winning new business, we have continued to generate increasing revenues from our established customers including Openwork Limited, Barclays, Home of Choice, Prudential, AEGON Scottish Equitable, Axa Sun Life, Trigold, Skandia, Bankhall and Co-Operative Insurance. Focus now has 32 clients using our software to support their POS operations. For some time we have recognised the value of our software and the value of its potential application outside of the UK financial services market, and to this end there has been progress in terms of identifying opportunities, securing long term contracts with partners and developing a sales pipeline. The award during the year of an initial contract worth £120,000 with BT plc for the delivery of an online company incorporation registrations system was an important step forward. Management and staff In March 2006, Richard Stevenson assumed the role of Group Chief Executive. His impact has been immediate, with the reorganisation of the management team to line up with our strategic objectives, improved operational efficiencies and the development of a coherent team and company ethos. I would also like to thank all our employees for their efforts, particularly over the past year. The enthusiasm, commitment and loyalty of our staff remain vital if the Company is to deliver on the strategy and to build on its continued success. Outlook The new financial year has started strongly and trading remains in line with market expectations. We continue to focus our sales efforts on well defined opportunities within the wider UK financial services market, where regulation change continues to drive demand. In addition, our established customer base continues to provide significant opportunities. The Group has a clear strategy for both organic and non-organic growth and the prospects remain good for the business. Following two successive years of profitable trading, the Board is now seeking to accelerate the growth in its business by a combination of partnerships, joint ventures and acquisitions. Our confidence in the future is reflected in our plan to introduce a dividend payment at end FY2008. Alastair M Taylor Chairman 12 June 2007 Chief Executive's Report Overview I joined the Group in March 2006 with high expectations that the business was ready and able to take the next step forward. The Group's reputation with its key customers is outstanding and the quality, expertise and commitment of its employees have been the foundation upon which the improved trading has been built. The opportunities available to us within our market should allow us to build a highly successful and sustainable business. However, there is much more to be done to bring direction and momentum to all parts of the Group's business and to build upon the progress made last year. Business performance The Group achieved record sales and profits in FY2007. Turnover increased by 20% from £6.58 million in FY2006 to £7.91 million in FY2007. This growth was driven by a combination of new clients and new projects for our established customer base. Gross profit increased by 21% from £4.53 million to £5.47 million. At the trading level, operating profits before exceptional costs increased from £0.37 million to £1.20 million. Basic and diluted earnings per share for the year ended 31st March 2007 were 5.46 pence per share and 5.22 pence per share, compared with 0.39 pence for both basic and fully diluted earnings per share for the year ended 31st March 2006. Despite making great progress in a number of areas, revenues outside the financial services market in FY2007 were disappointing. We have therefore reduced costs in line with our revised expectations. We will continue to seek penetration into other markets via partnerships, but we will seek to extend our footprint within the Financial Services Market. As at 31st March 2007, cash deposits totalled £3.00 million (FY2006: £0.12 million) reflecting improved profitability and more effective working capital management. The Group also has unused bank facilities totalling £0.5 million should we require them. The balance sheet remains debt free. Markets The markets in which we operate (predominantly the supply of front office solutions to the UK life and pensions and mortgage markets) have continued to be favourable over the past two years. The combination of increasing regulation and intensive competition has encouraged the leading players in these markets to seek competitive advantage through the utilisation of industry leading software. Focus has been one of the principal beneficiaries of this. While the outlook for these markets remains positive, we are mindful of the challenges we face. We need to continue to invest in development and to integrate new technologies into our applications and extend our product offering. We cannot afford to stand still and will continue to ensure Focus offers leading edge solutions to our customers. The development of successful partnerships is important for the future of the business. As some leading financial institutions seek to operate fully integrated front, middle and back office solutions, it is important that Focus is able to offer a "best of breed" option. In March, we announced a partnership with Redland Business Solutions, a leading provider of consultancy services and process support tools to financial services and insurance industries. Under this partnership agreement, it is intended that Focus becomes Redland's preferred partner in the UK Point of Sale and Extranet market and that Redland shall become Focus' preferred partner in the UK for Business Intelligence and compliant end to end process support tools. Developing our financial services business The majority of our revenue during the year has again been generated by delivering online and offline POS solutions and extranets to UK financial service companies to help them comply with regulatory requirements, improve their efficiency and reduce the cost of the sales process. Our solutions support the customer facing, front office elements of the sales process. To enhance our propositions we partner with other best of breed suppliers, particularly those who focus on the back-office elements of the process within the life, pensions and mortgage markets. Over the past two years there has been considerable consolidation in our market and we believe that this approach allows us to provide a compelling alternative to the offerings that our competitors are aiming to bring to the market. To maintain our position in the market, we must ensure we recruit and retain the best staff with the most appropriate experience to sell and deliver our solutions to the customer. We employ some outstanding individuals within Focus. Life and pensions The leading bancassurers and life and pensions providers are looking to deliver new products to their customers ever more quickly and ever more cost effectively. In recent years, changes in legislation in the life and pensions market directly led to high investment in technology to support the new distribution models that have begun to evolve. As a result the level of new business activity in FY2007 was at an all time high. We built on an exceptionally strong customer base, adding new business from HSBC Bank plc, Irish Life, St James's Place and Lincoln Financial Group while strengthening our relationships with new projects at existing customers such as Barclays, Openwork Limited and Home of Choice. Our customers are looking for technology, in particular, Service Oriented Architecture ("SOA") to secure competitive advantage by improving the customer experience. Our solutions have been developed to work within an SOA environment to support this goal. The most significant event in the year was the signing of a £6 million contract with HSBC Bank plc for the development and supply of the first phase of a large-scale, multi-channel POS system to support HSBC's multi-tie distribution channel for life, pensions and investment products. The development for HSBC is for their wealth management business. This sector has seen a lot of activity this year, with investors becoming increasingly demanding. Wealth managers need to be able to provide improved services to their clients, with information on portfolios available on demand via a range of channels. A further significant contract win in the year was the development of a POS solution for leading intermediary wealth managers, St James's Place. In the last quarter of the year, the Group won its first contract in Ireland, signing a contract with Irish Life plc for the development of an electronic POS solution for the sale of a full suite of life, pensions, protection, savings and investment products. The new POS solution will include FactFind and Suitability Letter components and will be rolled out to around 600 Irish Life advisers from June 2007, providing them with a streamlined and more efficient sales process. During the period, we continued to develop the electronic POS solution "e-Script" delivered in FY2006 which supports the sale of regulated life and pensions products for Barclays' corporate and personal customers. The new POS solution supports Barclays' new distribution network following depolarisation, providing links to six providers including Axa, Friends Provident, Norwich Union, Legal and General, Prudential and Standard Life. E-Script is also integrated with the industry portal, Assureweb, allowing Barclays advisers to submit new business applications online and providing a straight through electronic process for the adviser. Mortgages Progress in the mortgage market was less dramatic than in FY2006. However, our established mortgage customers continued to demand further developments. In February the Group signed a new licence agreement with Trigold, the leading provider of software to the intermediary mortgage market. This agreement allows Trigold to use Focus' technology to create electronic mortgage application forms to host on their industry portal and sourcing system, "Prospector AAA". The electronic forms, built with Focus' technology, will create a more efficient sales process for both the mortgage intermediaries and the lenders using the Trigold system. Government Over the past two years, we have entered the government market. We have identified e-government solutions suppliers as our preferred channel to the government market place to enable us to distribute our products widely, whilst mitigating the risk of entry into this complex market. Driven by legislative requirements for lower cost of development and ownership, together with increasingly onerous e-government targets, our solutions have wide appeal in central government, local government and in some specialist functions such as police forces. We have developed a set of offerings around the products, which give our distribution partners a wide choice of technologies, platforms and channels for the delivery of rich citizen-facing applications. These range from "stop and search" applications using digital pen technology to advanced portal processing for a major government department. All solutions are delivered using the Focus architecture. The award of a contract by BT plc for the delivery of an online company registration solution for Business Link was an important step forward for this embryonic business. The Focus software will now be considered to form part of a framework available for other Business to Government transactions. The initial phase was worth £120,000. Development It is essential for the future prosperity of the Group that we continue with our current level of spending in R&D. Our technology is one of the clear differentiators against our competition, both in our established markets and in the new sectors into which we are moving. Combining this technology with our business process knowledge and delivery expertise puts us in a strong position to win new business. In March 2007, we launched our new POS solution, "focus:pos", for the life, pensions and mortgage markets, which is aimed at bancassurers, large intermediary firms, pure mortgage networks and clubs and providers with controlled distribution. focus:pos is a generic single POS platform that enables organisations to trade life, pensions, investments and mortgage products electronically through a single solution. This will allow our customers to significantly reduce their development costs but also allow them to benefit from simplified and streamlined sales processes. IFRS As an AIM listed company, the Group is required to adopt International Financial Reporting Standards (IFRS) for accounting periods starting after 1st January 2007. When the FY2008 results are reported, the FY2007 numbers will be restated under IFRS. The first statements to be reported under IFRS will be the Interim Results for the six months ending 30th September 2007. We will work with our auditors to assess the impact of IFRS on our accounts. We have not yet quantified the impact although, in common with other software companies, the greatest change is likely to be in the area of research and development costs where some expenditure may have to be capitalised in future if certain criteria are met or in accounting for deferred taxation, goodwill and acquisitions. Strategy Our goals are clear and simple. We want to increase new business wins and continue to be recognised as the leading provider of front office solutions to the UK financial services markets. It is the Group's strong position in the UK financial services sector that underpins its growth and profitability. The structural changes in the market as a result of competition and the regulatory environment are continuing and we intend to increase our penetration of both the life and pensions and mortgage market by exploiting our expertise in these sectors. Focusing on winning a small number of high value contracts helps us develop close relationships with major financial institutions and leads to considerable on-going business. One of our key objectives over the next two to three years is to increase the proportion of our turnover that is represented by annually recurring revenues. Our established strategy, to exploit opportunities outside of the UK financial services market by making inroads into the Government market, is gaining traction as we build on the partner relationships we have established this year and continue to grow the specialist knowledge and resources we need to make progress in this market. We recognise that in today's market, Focus must grow faster to build a sustainable business. A central plank of this strategy is to consider potential acquisitions which will strengthen our product and market coverage in the front office market. Our strategy is based on extending our strong position in the front office space from life and pensions and mortgages into other associated verticals, thereby extending our product portfolio, extend our client base and bringing added value to our customer base. This will be achieved by a combination of internal development and acquisition. We aim always to deliver much more than just technology. Our objective is to fully understand our customers' business processes and to deliver significant added value to our customers by developing solutions that dramatically reduce their costs and enhance their ability to adapt to changes in their markets. We have a good story to tell. We provide our staff with a positive working environment, a strong work ethos and competitive salaries and associated benefits. We have a very clear focus on key markets and we have developed a profitable and cash generative business. Outlook We have taken a substantial step forward over the past year. These results are testament to the improvements made by the business and to the efforts of all our employees. The new financial year has started well and in line with market expectations. We look forward to continuing to execute the established strategy to develop a successful, consistently growing, profitable and cash generative business. Richard Stevenson Chief Executive 12 June 2007 Consolidated Profit and Loss Report 31 March 2007 Restated Year ended Year ended 31 March 31 March 2007 2006 Notes £'000 £'000 Turnover 2 7,908 6,585 Cost of sales (2,441) (2,055) -------- -------- Gross profit 5,467 4,530 Overheads Distribution costs (1,407) (1,424) Administrative expenses (including exceptional costs of £209,000, FY 2006: £273,000) (3,070) (3,012) -------- -------- (4,477) (4,436) -------- -------- Operating profit 3 990 94 -------- -------- ------------------------------- ------ -------- -------- Operating profit before 1,199 367 exceptional costs Share based payment expense (13) (16) Re-organisation costs (196) (257) ------------------------------- ------ -------- -------- Operating profit after 990 94 exceptional costs ------------------------------- ------ -------- -------- Profit on ordinary activities before interest 990 94 Net interest receivable 45 18 -------- -------- Profit on ordinary activities before taxation 1,035 112 Taxation 532 - -------- -------- Profit for the year 1,567 112 ======== ======== Earnings per ordinary share Basic 5.46p 0.39p Diluted 5.22p 0.39p The operating profit for both years arises from the company's continuing operations. Statement of Group Total Recognised Gains and Losses Restated Year ended Year ended 31 March 31 March 2007 2006 £'000 £'000 Profit for the financial year 1,567 79 ---------- Prior Year Adjustment in respect of the adoption of FRS20 "share based payments" (16) ---------- Total recognised Gains and Losses since the last Annual Report 1,551 ---------- There are no material differences between the profit on ordinary activities before taxation and the retained profit for the year stated above and their historical cost equivalents Consolidated Balance Sheet 31 March 2007 2007 Restated 2006 ------------------------ -------- -------- £'000 £'000 Fixed assets Tangible assets 218 135 ------------------------ -------- -------- Current assets Debtors- due within one year 3,625 3,657 Debtors- due after more than one year 671 490 Cash at bank and in hand 3,005 123 ------------------------ -------- -------- 7,301 4,270 Creditors: Amounts falling due within one year (3,475) (2,056) Net current assets 3,826 2,214 Total assets less current liabilities being net assets 4,044 2,349 ------------------------ ======== ======== Capital and reserves Called up share capital 2,930 2,864 Share premium 9,881 9,832 Merger reserve 220 220 Share option reserve 62 49 Profit and loss account (9,049) (10,616) ------------------------ -------- -------- Shareholders' funds - equity interests 4,044 2,349 ------------------------ ======== ======== Approved by the Board on 11 June 2007 R J Stevenson Director M J Clements Director Cash Flow Statement 31 March 2007 Year ended Year ended 31 March 31 March 2007 2006 £'000 £'000 Net cash inflow/ (outflow) from operating activities 2,799 (833) Returns on investments and servicing of finance 45 18 Taxation 82 - Capital expenditure and financial investment (159) (79) Cash inflow/ (outflow) before management of liquid resources and financing 2,767 (894) Financing 115 10 Increase/ (decrease) in cash in the year 2,882 (884) Reconciliation of net cashflow to movement in net funds Year ended Year ended 31 March 31 March 2007 2006 £'000 £'000 Increase/(Decrease) in cash in the period 2,882 (884) Movement in net funds in the year 2,882 (884) Net funds at start of year 123 1,007 Net funds at end of year 3,005 123 Notes to the Accounts 1. The financial information set out above does not constitute statutory accounts for the years ended 31 March 2007 and 2006, but is derived from those accounts. Statutory accounts for the year ended 31 March 2006 have been delivered to the Registrar of Companies and those for the year ended 31 March 2007 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. Prior year adjustment The financial information has been prepared using the same accounting policies set out in the statutory accounts for the year ended 31 March 2006, with the exception of the adoption of the new accounting standard. The Group has adopted FRS 20 (share based payments) for the first time in these financial statements. This represents a change of accounting policy and prior year comparatives have been restated accordingly. 2. Turnover The geographical analysis of turnover by destination is: 2007 2006 £000 £000 United Kingdom and Europe 7,908 6,560 North America - 25 ------ ------- 7,908 6,585 ------ ------- 3. Earnings/(loss) per share The basic earnings per share is based on attributable profit for the year of £1,580,000 (FY2006: £128,000) and on 28,717,745 ordinary shares (FY2006: 28,629,000) being the weighted average number of ordinary shares in issue during the year. The diluted earnings per share is based on attributable profit for the year of £1,580,000 (FY2006: £128,000) and on 30,022,619 shares (FY2006: 28,852,000 ) calculated as follows: Year Year ended ended 31 March 31 March 2007 2006 000's 000's Basic weighted average number of ordinary shares 28,718 28,629 Dilutive potential ordinary shares: 1,305 223 Share Options 30,023 28,852 4. Report and Accounts Copies of the Report and Accounts will be circulated to shareholders shortly and may be obtained after the posting date from the Company Secretary, Focus Solutions Group Plc, Cranford House, Kenilworth Road, Leamington Spa, CV32 6RQ. 5. AGM The AGM will be held at 10.00 a.m on 2 August 2006 at the registered office of the Company (Cranford House, Kenilworth Road, Leamington Spa, CV32 6RQ). This information is provided by RNS The company news service from the London Stock Exchange

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