Preliminary Results

Gresham Computing PLC 26 January 2001 Gresham Computing plc ('Gresham' or 'the Group') Preliminary Results for the year ended 31 October 2000 Gresham, a leading provider of enterprise products, services and testing, announces preliminary results for the year ended 31 October 2000. Highlights * Turnover for the year ended 31 October 2000 was £23.3 million (1999: £30.4m) * Pre-tax loss before goodwill £3.6 million (1999:£0.4 million) * Pre-exceptional and goodwill amortisation loss reduced from first half 2000 from £1.7 million to £0.4 million (Second half 1999 £1.3 million) * Exceptional items of £1.5 million resulting from business refocusing * Operations generate cash of £695,000 despite losses * Clear strategy and platform for future profitable growth developed by focusing attention on key account customers and an effective channel strategy for out IPR * Prospects for our Enterprise Software Solutions and Testing business are strong * A return to operating profitability is expected for the second half of the year and for the year to 31 October 2001 as a whole. Andrew Walton Green, Chief Executive commented: 'Trading conditions remained difficult for the Group throughout the financial year. However, considerable steps were taken by the board to develop an effective strategy and improve the performance of the Group. As a result of our actions, and given the up-turn in market conditions for the Group's businesses, we can now look towards 2001 with some optimism'. For further information, please contact: Gresham Computing plc 01489 555 500 Andrew Walton Green, Chief Executive Square Mile Communications Limited 020 7601 1062 Tim Jackaman / Sally Lewis Gresham Computing plc ('Gresham' or 'the Group') Preliminary Results Chairman's Statement RESULTS Group Turnover for the year ended 31 October 2000 was £23.3 million (1999: £30.4 million), after exceptional items and before goodwill amortisation there was a pre- tax loss of £3.6 million (1999: £0.4 million). The resultant loss per ordinary share was 9.38 pence (1999: 2.29 pence). The second half of the year has seen considerable restructuring of the business resulting in exceptional items of £815,000. Your board and management team have taken significant steps throughout the year to improve the performance of the group and also to develop an effective strategy for the business. I am pleased to be able to report that we have made considerable progress towards these objectives in the past six months. The pre-tax loss before exceptional items and goodwill amortisation for the six months ended 31 October 2000 was significantly reduced from £1,698,000 in the first half of the year to £383,000 (1999 H2: loss £1,342,000). In the second half of the year we recorded an increase in group revenue of eight percent reversing the decline in revenue reported in the previous two half years. Also during the second half of the year gross margin increased from 40% to 42%. During the year we have placed considerable emphasis on cash management and despite the level of operating loss we generated £695,000 of cash from operations and recorded a small increase in overall indebtedness of £307,000. OPERATIONS As I mentioned in my Interim Statement last July and as a result of the strategic review of the business undertaken last year, the current operations of the group have been organised into five business streams. As the management team makes progress in the implementation of our agreed strategy these streams will evolve further to reflect the most effective and efficient organisation of our business units. Enterprise Software Solutions Turnover increased during the year by 23% to £8.3 million (1999: £6.7 million), primarily as a result of a 100% increase in revenue from storage management solutions. In order to maximise the return from the group's IPR we are actively pursuing a strategy of expanding our routes to market through the utilisation of sales channels. In September, we entered into a worldwide distribution agreement with ACI Worldwide for our Tandem operational product (TOPS) and anticipate that further sales channels will be added during the next year for our products. Considerable interest is also being shown in Casablanca, our JAVA Enterprise Application Integration (EAI) product, through Casablanca Software Limited, a new subsidiary which has recently been established to fully exploit the potential of this product. Utility products continue to provide a strong maintenance revenue stream and in October we concluded a five year maintenance agreement with a significant UK outsourcing customer in excess of £1 million. SIM Testing SIM Testing recorded revenue for the full year of £4.5 million compared with £2.7 million in 1999 which represented the revenue for the first seven months after acquisition. Our strategy of providing automated and bespoke end to end testing through long term relationships with key accounts has proved to be a significant success. Turnover in the second half of 2000 grew by 48 % over that recorded in the first half and this trend has continued into 2001. Specialist Contract Staff The specialist contract staff business recorded reduced gross revenues of £4.8 million (1999: £6.6million) largely as a result of the Y2K microclimate. However, this division remains profitable and continues to be an important provider of human resources to the group and our key accounts. Financial Services Financial Services recorded revenue of £5.8 million (1999: £12.3 million). As previously reported this division has suffered a significant decline over the past 18 months as a result of the effect of the Y2K close down and also over capacity in the market we previously focused on. During the second half of the year it became apparent that this division would take longer to turnaround than initially expected. As a result it has been restructured to focus on IPR-led solutions in what remains an important vertical market for us. Integration Solutions Integration solutions recorded services revenue of £1.3 million (1999: £3.2 million). This division has been restructured to focus on IPR-led opportunities and also to provide a range of EAI solutions and services. The new structure for the group outlined above has been used as the basis of the segmental analysis shown in note 2. STRATEGY Gresham's core business is the provision of enterprise solutions through niche technologies and specialist services. As noted above our Integration Solutions and Financial Services divisions are taking longer to turnaround than our other businesses. These two divisions are increasingly becoming IPR-led niche solution providers operating within our enterprise products and services framework. As we further develop this focus it is likely that we will dispose of non-core business units when we can maximise shareholder value from them. OUTLOOK I am very pleased to be able to report that the group returned to operating profitability before goodwill amortisation in December. Since the year end our Enterprise Software Solutions and SIM Testing businesses have continued to perform strongly. The directors expect that this trend will continue, with a return to operating profitability in the second half of the year and for the year as a whole. EMPLOYEES The directors and I would like to take this opportunity to thank our staff. 2000 was a tough year for us all. Some difficult decisions were made and I would like to record my gratitude to each of you for your significant contribution in moving us back into a position to resume profitability and growth. Sid Green Chairman 25 January 2001 Gresham Computing plc GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 October 2000 Year ended 31 October 2000 Before Notes goodwill Goodwill amortisation amortisation £'000 £'000 £'000 TURNOVER 2 23,325 - 23,325 Cost of sales 3 13,796 - 13,796 -------------------------------------- GROSS PROFIT 9,529 - 9,529 Administrative expenses 3 11,357 703 12,060 Administrative expenses - exceptional items 4 1,489 - 1,489 -------------------------------------- OPERATING LOSS (3,317) (703) (4,020) Net interest payable 253 - 253 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (3,570) (703) (4,273) Taxation on loss on ordinary activities (267) - (267) -------------------------------------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (3,303) (703) (4,006) Dividends - equity interests - - - - non-equity interests 66 - 66 -------------------------------------- Retained loss for the year (3,369) (703) (4,072) ====================================== Earnings per share basic and diluted 5 -7.76 -1.62 -9.38 Gresham Computing plc GROUP PROFIT AND LOSS ACCOUNT, continued. for the year ended 31 October 2000 Year ended 31 October 2000 Before Notes goodwill Goodwill amortisation amortisation £'000 £'000 £'000 TURNOVER 2 30,350 - 30,350 Cost of sales 3 18,373 - 18,373 -------------------------------------- GROSS PROFIT 11,977 - 11,977 Administrative expenses 3 11,613 463 12,076 Administrative expenses - exceptional items 4 620 - 620 -------------------------------------- OPERATING LOSS (256) (463) (719) Net interest payable 145 - 145 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (401) (463) (864) Taxation on loss on ordinary activities (24) - (24) -------------------------------------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (377) (463) (840) Dividends - equity interests - - - - non-equity interests 66 - 66 -------------------------------------- Retained loss for the year (443) (463) (906) ====================================== Earnings per share basic and diluted 5 -1.12 -1.17 -2.29 Gresham Computing plc GROUP BALANCE SHEET at 31 October 2000 2000 1999 £'000 £'000 Fixed Assets Intangible assets 8,047 8,868 Tangible assets 2,737 3,345 ------------------- 10,784 12,213 ------------------- Current Assets Debtors 6,851 8,270 Cash at bank and in hand 343 231 ------------------- 7,194 8,501 Creditors: amounts falling due within one year 6,807 6,558 ------------------- Net Current Assets 387 1,943 ------------------- Total Assets Less Current Liabilities 11,171 14,156 ------------------- Creditors: amounts falling due after more than one year 3,658 2,430 Provisions for liabilities and charges - 49 ------------------- 7,513 11,677 =================== Capital and reserves Called up share capital 2,714 2,618 Shares to be issued - 2,925 Share premium account 5,232 3,969 Special reserve 313 313 Merger reserve 726 - Profit and loss account (1,472) 1,852 ------------------- 7,513 11,677 =================== Shareholders' funds Equity interests 7,003 11,167 Non-equity interests 510 510 ------------------- 7,513 11,677 =================== Gresham Computing plc GROUP CASH FLOW STATEMENT for the year ended 31 October 2000 2000 1999 Note £'000 £'000 Net cash inflow/(outflow) from operating activities 7 695 (147) Returns on investment and servicing of finance Net interest paid (253) (145) Preference dividend paid - (53) ----------------- (253) (198) ----------------- Taxation paid (288) (511) ----------------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (503) (1,573) Receipts from sale of tangible fixed assets 133 67 ----------------- (370) (1,506) ----------------- Acquisitions Purchase consideration and acquisition costs of subsidiary undertakings (66) (3,013) Net (overdraft) acquired with subsidiary undertakings - (20) ---------------- (66) (3,033) ---------------- Equity dividends paid - (217) ---------------- Financing New long term loans 500 2,000 Receipts from finance lease facility - 419 Repayments of finance leases and loans (272) (218) Repayment of short term loans (4) (159) New ordinary shares issued (net of issue costs) - 2,432 ---------------- Net inflow from financing 224 4,474 ---------------- (Decrease) in net cash in the period (58) (1,138) ---------------- RECONCILIATION OF NET CASH FLOWS TO MOVEMENT IN NET DEBT 2000 1999 £'000 £'000 Decrease in cash (58) (1,138) Net cash (inflow) from financing (224) (2,042) ---------------- Change in net funds resulting from cash flows (282) (3,180) Other movements in net funds Acquisitions - (90) Other (25) 1 ---------------- Movement in net debt (307) (3,269) Net debt at 1 November (2,910) 359 ---------------- Net debt at 31 October (3,217) (2,910) ================ Gresham Computing plc GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 October 2000 2000 1999 £'000 £'000 Loss for the financial year (4,006) (840) Exchange difference on retranslation of net assets of subsidiary undertakings (92) (45) ---------------- Total recognised gains and losses relating to the year (4,098) (885) ================ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 October 2000 2000 1999 £'000 £'000 Total recognised gains and losses (4,098) (885) Dividends (66) (66) Shares issued 2,925 7,527 Shares to be issued (2,925) 1,156 Goodwill on acquisitions - 104 ---------------- Total movements during the year (4,164) 7,836 Opening shareholders' funds 11,677 3,841 ---------------- Closing shareholders' funds 7,513 11,677 ================ Gresham Computing plc NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 OCTOBER 2000 1. The above financial information does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results for the year ended 31 October 2000 and the balance sheet at that date are extracted from the statutory accounts (on which the auditors have given an unqualified opinion), which will be filed with the Registrar of Companies. The comparative financial information is extracted from the statutory accounts for the year ended 31 October 1999 (on which the auditors have given an unqualified opinion), which have already been sent to shareholders and filed with the Registrar of Companies. 2. Turnover and segmental analysis Turnover 2000 1999 Inter segment External Inter segment External Turnover turnover turnover Turnover turnover turnover £'000 £'000 £'000 £'000 £'000 £'000 Enterprise products and services Enterprise software solutions 8,288 - 8,288 6,748 - 6,748 Integration solutions 1,344 - 1,344 3,241 - 3,241 Financial services 5,768 - 5,768 12,314 - 12,314 ---------------------------------------------------------------- 15,400 - 15,400 22,303 - 22,303 SIM Testing 4,533 - 4,533 2,714 - 2,714 Specialist Contract Staff 4,757 (1,365) 3,392 6,571 (1,238) 5,333 ---------------------------------------------------------------- 24,690 (1,365) 23,325 31,588 (1,238) 30,350 ---------------------------------------------------------------- Segment operating profit/(loss) Operating Goodwill Operating Goodwill Result Amortisation Result Amortisation £'000 £'000 £'000 £'000 £'000 £'000 Enterprise products and services Enterprise software solutions 1,612 (262) 1,350 1,476 (195) 1,281 Integration services (526) - (526) 239 - 239 Financial services (1,907) (60) (1,967) 312 (45) 267 ---------------------------------------------------------------- (821) (322) (1,143) 2,027 (240) 1,787 SIM Testing 54 (381) (327) 98 (223) (125) Specialist Contract Staff 184 - 184 554 - 554 ---------------------------------------------------------------- (583) (703) (1,286) 2,679 (463) 2,216 Common costs (2,734) (2,935) --------- --------- Operating (loss) (4,020) (719) Net interest (payable) (253) (145) --------- --------- (Loss)on ordinary activities before taxation (4,273) (864) ========= ========= Geographical analysis of turnover by source and destination Source Destination 2000 1999 2000 1999 £'000 £'000 £'000 £'000 United Kingdom 17,206 26,146 12,317 18,232 Rest of Europe 481 730 3,539 7,161 North America 5,590 3,405 5,669 2,824 Rest of World 1,724 1,558 1,800 2,133 Inter-segment (1,676) (1,489) - - sales ------------------- ------------------ 23,325 30,350 23,325 30,350 =================== ================== Analysis of profit (loss) on ordinary activities before taxation by source 2000 1999 Operating Goodwill Operating Goodwill result amortisation result amortisation £'000 £'000 £'000 £'000 £'000 £'000 United Kingdom (329) (381) (710) 3,485 (222) 3,263 Rest of Europe (103) - (103) 39 - 39 North America 6 (220) (214) (965) (165) 1,130 Rest of World (157) (102) (259) 120 (76) 44 -------------------------------------------------------------- (583) (703)(1,286) 2,679 (463) 2,216 Common costs (2,734) (2,935) Net interest (253) (145) ------- ------- payable (4,273) (864) ======= ======= Operating segments reflect the current operating structure of the group and comparatives have been re-stated accordingly. 3. Cost of Sales and Administrative Expenses In previous years all staff costs were charged to administrative expenses. In the current year all costs associated with service delivery have been charged to cost of sales. The comparative numbers for 1999 have been re-stated accordingly with £6,432,000 being transferred from administrative expenses to cost at sales. 4. Exceptional items 2000 1999 £'000 £'000 Compensation for loss of office 237 81 Reorganisation and restructuring costs 982 539 Bad debts 175 - Provision for diminution in value of 95 - leasehold property improvements ----------------- 1,489 620 ----------------- 5. Earnings per share (EPS) The calculation of earnings per ordinary share has been based on the loss attributable to shareholders, adjusted for preference dividends of £4,072,000 (1999: £906,000) and on a weighted average number of shares of 43,427,491 (1999:39,613,267). Diluted earnings per share is identical to basic earnings per share because potential diluting events would have the effect of reducing the loss per ordinary share. 6. Dividends The directors do not propose the payment of an ordinary dividend in respect of the year ended 31 October 2000. 7. Reconciliation of operating loss to net cash flow from operating activities 2000 1999 £'000 £'000 Operating Loss (4,020) (719) Depreciation 1,033 835 Amortisation 821 594 (Profit) / Loss on sale of fixed assets (22) 3 Decrease/(Increase) in debtors 1,406 563 Increase/(Decrease) in creditors 1,580 (1,381) Foreign exchange movement (103) (42) ------------------ Net cash inflow/(outflow) from operating activities 695 (147) ------------------ 8. This preliminary statement of results will not appear as an advertisement in any newspaper but the annual report will be sent to all shareholders by 28 February 2001 and copies will be available to members of the public from the company's registered office: Mitchell House, Brook Avenue, Warsash, Southampton SO31 9ZA.

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